Anyone Hear Moneybox Interviewing A Bod From Fscs?

[dreamOn120k]

Taking this one step further. Given a person with regular (non offset) £100k mortgage with High St BankX and another £30k already deposited with Northern Rock. If the High Street BankX is taken into public administration could the Government cross match accounts and grab the NR deposit to reduce the mortgage debt?

I suppose the answer is the Government can pass any Law it likes in the national interest.

Gold sovereigns under the bed are becoming more attractive by the day.

[goldmercury]

i fixed for 10 years in september so I doubt they could double the rate.

[Not Long Now]

Taking this one step further. Given a person with regular (non offset) £100k mortgage with High St BankX and another £30k already deposited with Northern Rock. If the High Street BankX is taken into public administration could the Government cross match accounts and grab the NR deposit to reduce the mortgage debt?

I suppose the answer is the Government can pass any Law it likes in the national interest.

Gold sovereigns under the bed are becoming more attractive by the day.

Good question. No idea what the answer is.

You're right, the government will do whatever they want to, to keep banks afloat in the event of banking meltdown. Even if this means people losing their savings. I personally don't believe they will be true to their 35k promise if it came down to it...

[dances with sheeple]

i fixed for 10 years in september so I doubt they could double the rate.

Does the fix die if the bank dies though? Does the company buying out a busted flush have to recognize all contracts made by the busted flush?

[dances with sheeple]

Good question. No idea what the answer is.

You're right, the government will do whatever they want to, to keep banks afloat in the event of banking meltdown. Even if this means people losing their savings. I personally don't believe they will be true to their 35k promise if it came down to it...

You can`t lose your savings to a bank if your savings are under a mattress or a floorboard.

[Abstra]

Er yes? I had an offset mortgage from 2001-2005 and basically every month I got a statement with a bloody big negative value on it. There was no separate 'savings' or 'loan' amount, just a total amount owed and one single account number. As we paid it off, the total amount owed (and thus monthly interest payments) decreased.

Surely if I originally borrowed £100K, paid that down to £70K and then the bank goes tits ooop, at that point any receiver just inherits my 70K of debt as an 'asset'?

What they are saying is that you would not get compensated for your loss of savings because you never had any if you owed the same bank money through your mortgage, you just thought you did.

Better to move the savings to another Bank and then if the Bank with your savings goes Bang you get compensated.

Then you can use the compensation to pay down the mortgage, which is what; Eh WTF it makes no bl**dy difference does it?.

[gavp]

I don't think this is right. If a bank goes into insolvency then the adminstrators will only be able to come after you for you net debt, i.e. debt - savings. If the bank sells on your debt to someone else then you won't have debt with the bank so you'll be entitled to compensation. If it's possible for the bank to sell on your gross debt and you not to be entitled to compensation for your savings I'd be very surprised. I'd want to see actual proof that that's possible rather than a particular interpretation of what someone said on the radio.

[Optobear]

What I mean is, if the 35k is protected 100% guaranteed what actually happens to the 100k,

The £35k is 100% guaranteed??? You surely don't believe that do you?

I've said this often before. It is a levy on the rest of the banking industry. There is no pot of cash to pay out £35k. The total maximum the scheme could pay out is £4.03 billion per year, out of a UK deposit base of £1.5 trillion. HBOS for example, seem to have £301bn on deposit. So if a large bank went under the FSCS scheme would pay out virtually nothing.

The FSCS will pay out 100% of £35k - but only if it never has to pay out.

I'll tell you what, I'll give a better guarantee - a new scheme offered by Bank of Optobear which will pay 100% of up to £45k of all deposits in the whole of the UK - but the guarantee only holds so long as the scheme never has to pay out.

That is why the government had to bail out NR. If they hadn't, then the tide would have gone out, and the sheeple would have seen that the banking system had nothing to be proud of! The £35k is a fiction. If it helps you feel good about your bank account, then great... but don't, for a second believe the system will work.

What will likely happen if HBOS or another bank goes under is that the government will step in and agree to underwrite the bank. That means the treasury will give other banks all they are owed by HBOS to try to keep the banking system alive. The government will give you back up to £35k by printing cash if necessary. They might give you all you have on deposit by printing cash. The problem will be that the cash will be just a pile of paper. It won't go far towards buying wheat or oil, etc.

[ziknik]

D'ya reckon I'm right in suggesting that the vast majority of savers are ignorant of this fact? Hardly common knowledge is it and I can't recall it being a discussion point when the NR panic ensued? As savers/investors/debtors us Brits are institutionally lazy, all eggs in one basket etc...

Thanks to this website, I feel fairly well clued up and prepared. But now I feel I need to re-organise my debt.

I didn’t pay much attention to the £35k guarantee because I don’t have anywhere near that amount of money.

I owe £1200 on my Barclaycard, and I have £400 in a Barclays current account to pay my bills every month.

If Barclays got into trouble, I would need to find £400 quickly to pay the bills from another account because Barclays would empty out my current account.

I have a similar example with HBOS

[okaycuckoo]

One more point: what if the original lender has sold the loan on (through securitisation, whatever) and is merely servicing the account for the new owners?

Would that be apparent to the borrower? Presumably the authorities would suss it out when the compensation application came in.

[dreamOn120k]

The £35k is 100% guaranteed??? You surely don't believe that do you?

In a single post you have told us our money isn’t and it is effectively guaranteed. Make your mind up.

So the Government has to increase money supply a few £ hundred billion to bail out anther retail bank or two, and yes that means inflation but money would not be rendered worthless overnight.

On another point, the Government would not payback other banks their interbank loans the day it took an ailing bank into administration, instead it would just tell the other banks that it would honour the terms of those interbank loans so those banks would in turn keep the loans on their balance sheet at their full value.

Your basic problem Optobear is that you seem spooked to discover that the banking system cannot payback all depositors tomorrow morning. This has been the case since the invention of banking 1000's of years ago. Calm down man.

[Reiver]

This is my first post but I am willing to learn.

I caught the end of an interview on R4 on last Monday and they were talking about the 35K guarantee for depositors with a UK bank.

Now the bit that got me was when the person being interviewed pointed out that the 35K only applies to a banking licence and not necessarily to the bank in question.

The example he gave was using HSBC and First Direct, who are owned by HSBC.

If you have 35K in HSBC and 35K in First Direct and HSBC went to the wall then they would take First Direct with them.

As First Direct are a subsidiary or HSBC and operate under the same Banking Licence then you would only be entitled to 35K of compensation.

I have two questions:

1. Is this correct?

2. How do I find out which banks are subsidiaries of which in order to avoid having too much deposited with one banking licence?

[Gone baby gone]

Your basic problem Optobear is that you seem spooked to discover that the banking system cannot payback all depositors tomorrow morning. This has been the case since the invention of banking 1000's of years ago. Calm down man.

The thing is, I think 70% of the general public probably still believe that UK banks have the cash available to cover all deposits. Very few understand the relationship between lending and deposits. Fewer still (until NR) understand that banks are often not lending depositors money at all.

Again, up until last September, very few people were aware that only the first £32K (or whatever is was then) would be covered in the event of a bank failure. Hardly surprising, since the chances of a major UK bank failing were apparently unthinkably small...

All that has changed and what Optobear states it true, the guarantee is worthless if it were ever needed. If banks are going bust, who exactly will provide this £35K? All the BoE could do is start the presses running.

[dreamOn120k]

... and what Optobear states it true, the guarantee is worthless if it were ever needed. If banks are going bust, who exactly will provide this £35K? All the BoE could do is start the presses running.

Ok first thing, in a time of national crisis the Exchequer and the BoE act as a single institution. We don't have a firm written constitution like the US.

If a couple of retail banks are taken into public administration the government can issue 10 year gilts to help fill the liquidity gap. Even with NR obligations on the public accounts, the UK could still raise another few £100 billion before our public debt became the largest in Europe.

Anyhow it does not have to play out like that, consider what happens if a succession of UK banks get taken into public admin. There are two outcomes:

1 - People begin to distrust the remaining independent banks and deposit money with the banks operating under public admin. In which case the government does not have to borrow.

2 - The last independent bank standing has 90% of the nation's deposits which is such a stupendous amount of money this bank's only option will be to lend it back to the government = zero sum gain.

Actually there would be a gain, because with most banks under government admin there would be no point in advertising retail banking products so we would all be spared those irritating Halifax TV ads and callcentre sales calls. Hey communism is beginning to sound really attractive!

[Picardy Boy]

Are we sure it is not like this.

£300k mortgage with bank - £80k savings with bank - You're in debt £220k.

Bank goes broke.

You owe £300k mortgage still - You lose savings but get £35k compensation - You're in debt £265k.

That seems more like the way a British bank would calculate things

Edited March 24, 2008 by Picardy Boy

[R K]

All bank lending includes a clause giving them the right to offset any credit balances against loans.

T'was ever thus. You're in net debt to them. Why would it be any other way?

[Converted Lurker]

Are we sure it is not like this.

£300k mortgage with bank - £80k savings with bank - You're in debt £220k.

Bank goes broke.

You owe £300k mortgage still - You lose savings but get £35k compensation - You're in debt £265k.

That seems more like the way a British bank would calculate things

nope you lose your savings

[Gone baby gone]

What they are saying is that you would not get compensated for your loss of savings because you never had any if you owed the same bank money through your mortgage, you just thought you did.

Better to move the savings to another Bank and then if the Bank with your savings goes Bang you get compensated.

Then you can use the compensation to pay down the mortgage, which is what; Eh WTF it makes no bl**dy difference does it?.

Yeah, I think I was heading in the wrong direction. The original post is drawing attention to problems that could arise if you were borrowing from and depositing with the same banking institution (as defined by the license).

I don't think there would be a problem with a 'true' offset account, as you are always in debt anyway, there are never any notional savings.

I do wonder about people who have £35K in savings and also still have an outstanding mortgage though... I know you can get good savings rates, but you sleep that little bit easier with no debts.

[Converted Lurker]

and another thing, the bod from the FSCS deffo stated that foreign banks on high st. (ABBEY) would not be levy to the same UK protection... in the event of a collapse you'd be on your own and have to take it up with their relevant authorities

[dreamOn120k]

You owe £300k mortgage still - You lose savings but get £35k compensation - You're in debt £265k.

That seems more like the way a British bank would calculate things

You could be right.

The thing is we should not have to speculate, ignorance led to the NR run on the bank. This discussion thread is yet another indicator that the FSA is not doing its job.

If people feel the current situation is ambiguous they will be more likely to keep cash under the mattress or buy gold or deposit money abroad. In fact I have already started and plan to keep £1000 cash at home.

[Optobear]

In a single post you have told us our money isn’t and it is effectively guaranteed. Make your mind up.

So the Government has to increase money supply a few £ hundred billion to bail out anther retail bank or two, and yes that means inflation but money would not be rendered worthless overnight.

On another point, the Government would not payback other banks their interbank loans the day it took an ailing bank into administration, instead it would just tell the other banks that it would honour the terms of those interbank loans so those banks would in turn keep the loans on their balance sheet at their full value.

Your basic problem Optobear is that you seem spooked to discover that the banking system cannot payback all depositors tomorrow morning. This has been the case since the invention of banking 1000's of years ago. Calm down man.

Could be I'm spooked, or could be that I'm a spooker, trying to spook others....

Do you think it would just be one or two retail banks? Once someone bigger than NRK falls it is game over for banks. Building societies would be the only credible offering on the high street.

[Ah-so]

how was this surprising?

Not that surprising really, although netting off of debts is not legally enforceable in a normal business context. Are all savings you have with the bank nettable against your debts or only the protected £35k? I think it would only be your FSCS protected money. so:

If you have a £200,000 mortgage and £100,000 savings and the bank went insolvent, I think you would lose £65k, and end up with the £35k under FSCS.

This would then be netted against your mortgage to leave you with £165,000 mortgage, not £100,000.

[Converted Lurker]

Not that surprising really, although netting off of debts is not legally enforceable in a normal business context. Are all savings you have with the bank nettable against your debts or only the protected £35k? I think it would only be your FSCS protected money. so:

If you have a £200,000 mortgage and £100,000 savings and the bank went insolvent, I think you would lose £65k, and end up with the £35k under FSCS.

This would then be netted against your mortgage to leave you with £165,000 mortgage, not £100,000.

nope there is IMHO far too much supposition and attempts at sophistication on this thread, presumably for personal comfort reasons. The guy clearly stated that if you had 100K of mortgage debt and 35k of savings you would be entitled to no protection on your savings as you owed the bank. No double speak no 'erms or ahhs' no wriggle room, you'd lose your savings.

[Optobear]

Ok first thing, in a time of national crisis the Exchequer and the BoE act as a single institution. We don't have a firm written constitution like the US.

If a couple of retail banks are taken into public administration the government can issue 10 year gilts to help fill the liquidity gap. Even with NR obligations on the public accounts, the UK could still raise another few £100 billion before our public debt became the largest in Europe.

Anyhow it does not have to play out like that, consider what happens if a succession of UK banks get taken into public admin. There are two outcomes:

1 - People begin to distrust the remaining independent banks and deposit money with the banks operating under public admin. In which case the government does not have to borrow.

2 - The last independent bank standing has 90% of the nation's deposits which is such a stupendous amount of money this bank's only option will be to lend it back to the government = zero sum gain.

Actually there would be a gain, because with most banks under government admin there would be no point in advertising retail banking products so we would all be spared those irritating Halifax TV ads and callcentre sales calls. Hey communism is beginning to sound really attractive!

Does one bank end up with 90% of the deposits? I think not, 90% of people can't get their cash out without the system folding because most of the money has been lent out for 25 years (effectively).

The government can raise the money? At what price, 100bn is a huge amount of money. I think all the recent events have made people rather blase about billions. The government project a spend of £111bn on health for the whole of the UK this year. You think they could raise a few £100bn.

The UK can't find that much, so they'd have to borrow from abroad, but the exchange risk would be so massive, that interest alone would be crippling.

The government would just have to print the money, but what fraction of services and goods that you currently consume come from the UK? So you can pay your hairdresser in the newly destroyed Brown Poonds, but what about fill your car? Buy food? Buy white goods? Buy cars? Buy hi-tech goods?

If they have to print the money, then we will all be many times poorer. Say goodbye to foreign holidays...

[Optobear]

nope there is IMHO far too much supposition and attempts at sophistication on this thread, presumably for personal comfort reasons. The guy clearly stated that if you had 100K of mortgage debt and 35k of savings you would be entitled to no protection on your savings as you owed the bank. No double speak no 'erms or ahhs' no wriggle room, you'd lose your savings.

Didn't hear the program, and not sure why no one else has thought to look, but it is spelt out on the FSCS website. http://www.fscs.org.uk/consumer/how_to_claim/deposits/

That is what is says.

From 1 October 2007, FSCS can pay compensation for financial loss of up to £35,000 for deposit claims (which is 100% of the first £35,000) if a deposit-taking firm (such as a bank or building society) is unable to pay back deposits it owes to its members. For claims against deposit-taking firms declared in default before 1 October 2007, the maximum level of compensation is £31,700 (100% of £2,000 and 90% of the next £33,000).

Amounts owed to the failed firm (for example loans, mortgage or credit card debts) are taken into account before any compensation is paid.

Does that answer the question. Note it says "taken into account" not netted off.

So it doesn't answer the question. Neither does the underlying legislation. http://www.opsi.gov.uk/ACTS/acts2000/ukpga_20000008_en_19

Do you know why it doesn't answer the question? Can't you just all tell what I'm going to say next based on my previous posts? It doesn't answer the question because it doesn't need to. This legislation and scheme isn't like a set of rules explaining what happens in certain events, it is a comfort blanket for the masses. The FSCS isn't thought out in this level of detail because it isn't actually capable of operating for a major bank run. There is no need to have a full set of rules if it won't ever have to pay out. In fact, if they did publish more details it would be less valuable as a comfort blanket because it would be more apparent that the scheme is a fiction.

Also notice in the first paragraph "FSCS can pay", not "FSCS will pay". This stuff is written by professionals, they're not getting into saying "will" when they know full well they mean "can".

Do those who criticised my previous post get it now? How much more evidence do you need? The FSCS is like a promise of eternal life after you die. If it makes you happy, then fine. But similar to the issue of the afterlife, if you actually stop and think, you'll realise that the FSCS guarantee is just a fiction.

So if you want to have £35k guaranteed, and you have faith in the scheme, then you have £35k guaranteed. If you are a little bit sceptical, then you're on your own... a bit like the afterlife.

Optobear