Tuesday, October 7, 2008

The compensation schemes get their first test

Icesave savers warned on accounts

Customers of the Icesave internet bank have been warned they will probably have to claim compensation for money held in their savings accounts.

Posted by shipbuilder @ 01:15 PM (1627 views)
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29 thoughts on “The compensation schemes get their first test

  • matt_the_hat says:

    As we all know time is money and with inflation out of control when do you get your money back via gov backed scheme??

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  • “This dismayed customer Mike Davis, 62, who has £75,000 in retirement savings locked up in an Icesave account until 25 October”

    oh dear…

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  • What are the rules on interest? If interest is paid on maturity, the end of the tax year or on the anniversary of an account being opened, is it excluded from the guarantee if the claim date is today?

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  • theboltonfury says:

    matt, all I see around me is mostly deflation. Oil, retail, wages, houses

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  • The rumour was, only domestic savers will get compensation from Iceland, leaving the UK savers to pursue funds from the UK FSA.

    If this is so, does this mean the FSA will have to compensate with UK tax payers money, as Iceland is, allededly, pretty much broke (Icelandics
    are stock piling food ec) ?

    If turns out to be the case, shouldn’t the UK freeze all “assets” in these shores that Icelandic banks had invested in, with immediate effect, to compensate
    UK savers ? Seems like a good idea, apart from all the UK retailers are becoming worthless.

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  • bolton – I agree. I tried, yesterday, to get someone to explain how inflation would take off if wages are depressed.

    To answer my own question – it may well be by depreciation of sterling and the inevitable increase in import prices – and then strikes – and then wage increases.

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  • matt_the_hat says:

    @theboltonfury

    Sure I hear what your saying – oil is going down but what’s the petrol prices like in the UK at the moment? House prices are going down but mortgages are going up? Retail prices are going down but after you’ve done the weekly shop do you have any money left? And finally wages – these are going down – but the real factor to consider with inflation is money supply not prices – the old trick is to get the new money i.e. gov bailouts, before prices are effected, that’s how these guys (bankers) make money don’t you think.

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  • Iceland – first National Bankruptcy?

    Iceland facing national bankruptcy PRINT FRIENDLY EMAIL STORY
    The World Today – Tuesday, 7 October , 2008 12:22:00
    Reporter: Jennifer Macey
    ELEANOR HALL: At the heart of the financial storm is the tiny Nordic country of Iceland.

    The government in Reykjavik has just enacted emergency legislation to try to avoid becoming the first entire country to be bankrupted by the credit crisis.

    Iceland’s currency plummeted 30 per cent last week and its banking system which had expanded aggressively overseas in recent years is close to collapse.

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  • matt_the_hat says:

    Guys please wake up. Its not about this paper crap, its about assets and controlling capital. The guys with real money don’t care about inflation thats our problem, they pay your wage depending upon last years ‘inflation figures’, your always lagging, always getting a smaller piece of the pie. Then when it looks like deflation might happen, bang the printing presses get turned on again. Trust me don’t worry about deflation its never going to happen.

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  • maybe a run on a back is a good idea now……….

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  • what happens when a nation goes bankrupt?

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  • Doomwatch, it was no rumour but a publicly-announced Icelandic Government guarantee for 100% of deposits for Icelandic customers only.

    However, the situation remains the same for UK savers with Icesave: the FSCS’ Passport system applies (about £16k from Iceland, the balance up to £50k topped up by the UK). FSA are today reported as saying they will handle both claims (to them and the Icelandic scheme) so you only fill one form.

    Yes, there are huge questions marks over the scheme’s ability to cope (though there are signed political agreements in place with Sweden/Norway/Denmark which might help), but the point is the guarantee you refer to does not affect the existing guarantee that UK savers come under. So no, the FSCS would not have to cover the full £50k.

    *IF* the Icelandic government cannot pay their share, the FSCS will still pay the balance. So, if you have £50k with Icesave and Rekyavik cannot come up with the £16k, you will still get the remaining £34k. Bad, but not as bad as losing £50k.

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  • I blame Kerry Katona.

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  • 10. malct said…
    what happens when a nation goes bankrupt?

    Russia buys it.

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  • theboltonfury says:

    matt, cash is therefor King

    petrol is coming down to near a pound a litre, albeit slower than the cride price. I guess this is due to the weakening pound

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  • theboltonfury says:

    @11 too true. That wretched pig has a lot to answer for

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  • Matt

    Deflation is just around the corner and don’t think that flooding the economy with cash will help. Deflation sets in very quickly and as soon as consumers realise what is happening they will stop buying. Take a look at the situation in Japan. The government there tried to prevent this happening and predictably failed as the UK government is failing now. Asset prices will collapse very soon.

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  • japanese uncle says:

    In the event FSA mishandles the situation, run on every bank except NR and NSI is quite likely, obliterating the whole banking industry.

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  • reality is hitting the world, so why aren’t houseprices dropping more, they now feel way to overpriced… i reckon the ave price should sit around 60k given the current climate……………

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  • gardeniadotnet says:

    I thought Iceland’s assets were already frozen.

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  • matt_the_hat says:

    how long do people have to wait to get their money back from FSA, days (ok), weeks (tolerable), months (runs on banks), years (no more labour gov period).

    Does anyone know the answer or is it still to be decided by committee.

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  • landofconfusion says:

    Well just wait until no one can get a mortgage. THEN your 60k will buy you a mansion.

    > I have a feeling that prices wont go down for another year until the dust settles and the rot sets in and the panic starts…………

    The way things are going it might not even be a year.

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  • landofconfusion says:

    > 19. matt_the_hat said…
    >
    > how long do people have to wait to get their money back from FSA

    I heard somewhere it was 30 days. That said, this is the FSA we’re talking about.

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  • FSCS guidance is three months. But it has never been tested. FSA today said they are likely to claim from Iceland for you, if the time comes, so customers fill just one form.

    Also I saw someone say they hope Landsbanki went bust before midnight when the FSCS limit went up to 50k. Not a problem: Landsbanki has not gone bust, it has been taken into receivership (which is different). So there is as yet no claim to be made. But if (when?) it comes, it will be 50K (including the Icelandic element) unless Rekjavik has a time machine.

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  • Re: getting money back

    Are you clear where this money actually comes from that’s ‘handed back’.

    As I understood it was from the other banks – but hey guess what they haven’t got any money either.

    So lets turn to the government – Oh they’ve given it all to the banks.

    I have a horrible feeling that the FSA promise was made and at the time not really thought out as firstly they never thought it would be exercised and secondly assumed if it was it would be only 1 small bank in trouble and the big ones would bail it out.

    Has this FSA promise actually been ‘stress tested’ ?

    And what happens when it’s not one small bank but several very big ones and all others are on the brink ?

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  • str2007 EXACTLY. What has been envisaged is a small institution going under, NOT a massive one. I said a few months ago on here that if one or 2 go of the size of NR – thats ok – its if an HBOS goes then you are exactly right. From the moneysavingexpert.com site:

    The FSCS doesn’t keep a pot of cash sitting ready and waiting. Instead, it has the power to operate a ‘compulsory levy’ on banks, insurers and others signed up to the scheme, as and when it needs the money.

    The advantage of this is it can pull cash from more than just the affected sector (i.e. if an insurer went down, while other insurers must contribute first, above a set level banks would be asked too) so funds should be available.

    In theory, this means should the worst happen and a bank goes out of business, the FSCS has the legal power to call in funds from major financial institutions to cover the compensation needed to repay the first £50,000 lost by every saver

    What if the FSCS didn’t have enough money?

    The FSCS has a cap on how much cash it can levy per year from financial institutions; from 1 April 2008 the overall capacity was set at just over £4 billion. Yet in the FSA’s review document (page 77), it admits that £4 billion wouldn’t even cover the twenty-fifth biggest UK deposit taker, so it’s nowhere near enough for the big banks!

    Thankfully, FSA documents also confirm…

    “5.51 The Government will therefore include provision in the forthcoming legislation to allow the National Loans Fund to lend to the FSCS. These loans will have to be repaid, with interest charged at appropriate market rates, out of future levies on the industry, as well as from the share of recoveries from the estate of the failed bank that accrue to the FSCS.”

    Which in a nutshell means if the fund didn’t have enough cash, the Government will lend it the money, and it will then will try and get it back from the insolvent bank’s assets and by putting a levy on the banks for years to pay it back.

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  • in any case if an HBOS type bank did go under, then we would be taking about massive contagion. Thats the problem we were discussing a while back… I said yes you can let a manufacturer go but you cant just let a (major retail) bank go…

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  • Thanks for clarifying techieman

    Looks like a major nationalisation will be the order of the day then.

    Cash for shares I think as MW was suggesting.

    I do believe it’s us on here running the country.

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