Brendan Burgess
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Government has announced that the limits will be raised to 100% of 100k
Is the new 100% of 100k a good idea?
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GeneralZod
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Re: Government to increase safety deposit limit to €60k?
Presumably this will give them an excuse to offer lower interest rates as they'll need to make higher contributions into the scheme.
Presumably this will give them an excuse to offer lower interest rates as they'll need to make higher contributions into the scheme.
Duke of Marmalade
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Re: Government to increase safety deposit limit to €60k?
Is that 100% of 200K for a married couple in any Irish deposit taker? What about the Boss' point that this is only as good as the size of the compensation fund? I heard Lenihan on radio - sounds very like a legal Government guarantee.
I still think yesterday's statement amounts to a moral Government guarantee of all deposits.
These are happy days indeed for depositors. They can enjoy some very juicy rates with no risk whatsoever up to €200K.
This can't be great news for the Big Two as their perceived advantage of TBTF or indeed their general better security is considerably neutralised.
I also think that this announcement substantially eliminates the Northern Rock advantage of a British Government guarantee, it was a good move if for no other reason than this. You can get better than 5% on 200K on (is it 10?) Irish institutions, hey that's €2million for each couple.
Is that 100% of 200K for a married couple in any Irish deposit taker? What about the Boss' point that this is only as good as the size of the compensation fund? I heard Lenihan on radio - sounds very like a legal Government guarantee.
I still think yesterday's statement amounts to a moral Government guarantee of all deposits.
These are happy days indeed for depositors. They can enjoy some very juicy rates with no risk whatsoever up to €200K.
This can't be great news for the Big Two as their perceived advantage of TBTF or indeed their general better security is considerably neutralised.
I also think that this announcement substantially eliminates the Northern Rock advantage of a British Government guarantee, it was a good move if for no other reason than this. You can get better than 5% on 200K on (is it 10?) Irish institutions, hey that's €2million for each couple.
moneyminder
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Re: Government to increase safety deposit limit to €60k?
Great news but one week too late for all the hassle customers and finanacial institutions had all week with people hysterically withdrawing and moving money.
It would have got far worse next week too, especially with Eddie Hobbs stirring it last night on the Late Late suggesting a bank was going under and he knew who it was (smug grin) but wouldn't say as he could not start a bank run. I have no time for him now.
Great news but one week too late for all the hassle customers and finanacial institutions had all week with people hysterically withdrawing and moving money.
It would have got far worse next week too, especially with Eddie Hobbs stirring it last night on the Late Late suggesting a bank was going under and he knew who it was (smug grin) but wouldn't say as he could not start a bank run. I have no time for him now.
G
Guest124
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Re: Government to increase safety deposit limit to €60k?
I welcome the move but maybe they should have at least matched the highest rate in any European Country. Italy is €103,000 for example.
I welcome the move but maybe they should have at least matched the highest rate in any European Country. Italy is €103,000 for example.
R
rmelly
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Re: Government to increase safety deposit limit to €60k?
The existing fund definitely wouldn't be sufficient - I read somewhere that it is sufficient to cover the existing 20k guarantee for 20,000 savers - i.e. approx €400 million. Changing to 60k (or 100k) means the government will need to fund it, as significantly increasing the contributions from the banks (currently 1% of deposits (I think?)) would surely adversely affect the banks?
The existing fund definitely wouldn't be sufficient - I read somewhere that it is sufficient to cover the existing 20k guarantee for 20,000 savers - i.e. approx €400 million. Changing to 60k (or 100k) means the government will need to fund it, as significantly increasing the contributions from the banks (currently 1% of deposits (I think?)) would surely adversely affect the banks?
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I
irishlinks
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Re: Government to increase safety deposit limit to €60k?
I wonder how Credit Unions got included? They won't have been contributing to the "pot" - will they have to make a bigger contribution to cover the missing years? I doubt it.
Also - as an earlier poster pointed out - if the size of the fund isn't big enough to cover the deposits in a bank that does get into trouble - then what happens?
I wonder how Credit Unions got included? They won't have been contributing to the "pot" - will they have to make a bigger contribution to cover the missing years? I doubt it.
Also - as an earlier poster pointed out - if the size of the fund isn't big enough to cover the deposits in a bank that does get into trouble - then what happens?
Duke of Marmalade
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Re: Deposit guarantee scheme increased to 100% of €100k
Yep, it's 100% of 100K per person per deposit taking institution and it seems to be a no holds barred Government guarantee, nothing about this compensation fund nonsense.
The Winners
Depositors for sure, though will it reduce competition? I rather think it might actually increase competition.
Banks other than the Big Two.
Credit Unions, who are the surprise windfall beneficiaries.
Brian Lenihan, good move Brian.
The Losers
Rabo - poor Rabo banging on about its gazillion A rating and paying rather less than the going rate, and it only has a miserable Dutch guarantee. Watch all that recent Rabo money being transferred to paddy banks.
Northern Rock, somewhat similar to Rabo.
An Post, but do they really care?
Life companies - they don't seem to have any guarantee scheme.
Neutral
The Big Two. A mixed blessing here. Yes they were suffereing a bit from the "let's have oodles of 20K deposits" syndrome but had an advantage in pitching at higher deposits because of perceived TBTF.
There is also the question of whether banks will have to fund this vastly increased guarantee scheme, but I am getting a sense that it will not be funded but will be pay-as-you-go.
Yep, it's 100% of 100K per person per deposit taking institution and it seems to be a no holds barred Government guarantee, nothing about this compensation fund nonsense.
The Winners
Depositors for sure, though will it reduce competition? I rather think it might actually increase competition.
Banks other than the Big Two.
Credit Unions, who are the surprise windfall beneficiaries.
Brian Lenihan, good move Brian.
The Losers
Rabo - poor Rabo banging on about its gazillion A rating and paying rather less than the going rate, and it only has a miserable Dutch guarantee. Watch all that recent Rabo money being transferred to paddy banks.
Northern Rock, somewhat similar to Rabo.
An Post, but do they really care?
Life companies - they don't seem to have any guarantee scheme.
Neutral
The Big Two. A mixed blessing here. Yes they were suffereing a bit from the "let's have oodles of 20K deposits" syndrome but had an advantage in pitching at higher deposits because of perceived TBTF.
There is also the question of whether banks will have to fund this vastly increased guarantee scheme, but I am getting a sense that it will not be funded but will be pay-as-you-go.
Brendan Burgess
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Re: Deposit guarantee scheme increased to 100% of €100k
Irish Links asked:
The pot is a percentage of the current deposits at the financial institution.
So if a bank's deposits reduce, they get some money back off the scheme.
Brendan
Irish Links asked:
The pot is a percentage of the current deposits at the financial institution.
So if a bank's deposits reduce, they get some money back off the scheme.
Brendan
Brendan Burgess
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Re: Deposit guarantee scheme increased to 100% of €100k
The big loser is the Irish taxpayer.
We are now guaranteeing the deposits of all financial institutions, no matter how reckless they have been in their lending or their investing.
I had not been aware that it was a government guarantee. How can this get through the EU? Surely that is a soft subsidy to Irish banks and it increases their competitiveness over other EU banks.
Brendan
The big loser is the Irish taxpayer.
We are now guaranteeing the deposits of all financial institutions, no matter how reckless they have been in their lending or their investing.
I had not been aware that it was a government guarantee. How can this get through the EU? Surely that is a soft subsidy to Irish banks and it increases their competitiveness over other EU banks.
Brendan
Re: Deposit guarantee scheme increased to 100% of €100k
Is it actually a government guarantee though? All I've read says that its the usual deposit scheme, paid for by the banks themselves. Obviously €500m may not be enough, after which I've read that the CBFSAI can somehow provide more. But where does this come from? The taxpayer? The minimum reserve of the banks? Its not like they can just print the money is it?
Is it actually a government guarantee though? All I've read says that its the usual deposit scheme, paid for by the banks themselves. Obviously €500m may not be enough, after which I've read that the CBFSAI can somehow provide more. But where does this come from? The taxpayer? The minimum reserve of the banks? Its not like they can just print the money is it?
Duke of Marmalade
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Re: Deposit guarantee scheme increased to 100% of €100k
It is an incredible development, Boss. I think Rabo in particular will be writing a letter on a stiff piece of cardboard to Charlie McCreevey or whatever Eurocrat is concerned with these matters.
I think this thing is going to be unfunded. It will only cost the Irish taxpayer if it is ever called upon, but I think (judging by yesterday's speech by Lenihan) it was judged that in practice the Irish taxpayer would have to pay up anyway. Might as well accept that fact now rather than wait, this way I think the chances of it ever being called upon have been reduced.
The Credit Unions is a real surprise. Surely not per CU. Weren't there some wobbly CUs outside their existing scheme, are they covered as well?
It is an incredible development, Boss. I think Rabo in particular will be writing a letter on a stiff piece of cardboard to Charlie McCreevey or whatever Eurocrat is concerned with these matters.
I think this thing is going to be unfunded. It will only cost the Irish taxpayer if it is ever called upon, but I think (judging by yesterday's speech by Lenihan) it was judged that in practice the Irish taxpayer would have to pay up anyway. Might as well accept that fact now rather than wait, this way I think the chances of it ever being called upon have been reduced.
The Credit Unions is a real surprise. Surely not per CU. Weren't there some wobbly CUs outside their existing scheme, are they covered as well?
Z
z109
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Re: Deposit guarantee scheme increased to 100% of €100k
Expect a big increase in the levy to increase the fund, with a new levy on credit unions. Whether this results in a lower interest rate on deposit accounts, a separate levy on interest, or lower bank profits will be interesting to see.
The EU, as I see it, just specifies that there has to be a scheme that pays out a minimum of 20k. As noted elsewhere, the Italian scheme already pays out up to 103k, so I don't see any problems. As long as the scheme is open to all entrants in the Irish market, it is not discriminatory from a trade point of view.
Brendan, did you ever think it would be any different? What was the government going to do? Let voters lose money? Look what happened in the UK.
Expect a big increase in the levy to increase the fund, with a new levy on credit unions. Whether this results in a lower interest rate on deposit accounts, a separate levy on interest, or lower bank profits will be interesting to see.
The EU, as I see it, just specifies that there has to be a scheme that pays out a minimum of 20k. As noted elsewhere, the Italian scheme already pays out up to 103k, so I don't see any problems. As long as the scheme is open to all entrants in the Irish market, it is not discriminatory from a trade point of view.
Re: Deposit guarantee scheme increased to 100% of €100k
Brendan your initial comment is correct. It is not a quite a government guarantee.
Deposit Guarantee Schemes (DGS) are designed either front end funded or partial funding with post event funding.
A large fund up front fund is created, which is used to finance compensation for ordinary depositors in the event of a failure of one or more credit institutions.
The other type, which is the one we have, creates a smaller fund.
Where either runs out of money it can call on its members for more.
Thus a DGS has a call on the balance sheets of its members. In addition all schemes have lines of credit with national treasury as they must be able to compensate savers. This is where the government backing happens.
Of course if a catastrophic event occurs- the failure of a number of significant firms the scheme would not be enough which is where government steps in.
Some schemes also allow for supports for a troubled firm where it can show it had a reasonable chance of survival. Designing a scheme requires a decision on which type it is to be . Paybox - pay out when a firm defaults or support type. Support and or payout.
One reading of the effect of the Ministers announcement is a simple Ministerial order increasing the existing limit to €100k plus an amendment to legislation to cover credit unions.
Funding is a separate issue either ex-post or ex-ante not directly associated with its guaranteed amount. Funding up front requires a higher rate than funding partially up front. I imagine the existing funding rate won't change by much.
Finally the guarantee is likely to be 100% of 100k per account holder rather than account. One of the most important issues is how fast a scheme will pay out. In the US depositors have access to their savings within 48 hours. But here it could take a minimum three months extendable out to nine months. The UK authorities are looking at one week. The issue is not that people’s money is covered but also that it is not locked up. So immediate or near immediate access is a must.
(if this post appears twice my apologies)
Kaplan
Brendan your initial comment is correct. It is not a quite a government guarantee.
Deposit Guarantee Schemes (DGS) are designed either front end funded or partial funding with post event funding.
A large fund up front fund is created, which is used to finance compensation for ordinary depositors in the event of a failure of one or more credit institutions.
The other type, which is the one we have, creates a smaller fund.
Where either runs out of money it can call on its members for more.
Thus a DGS has a call on the balance sheets of its members. In addition all schemes have lines of credit with national treasury as they must be able to compensate savers. This is where the government backing happens.
Of course if a catastrophic event occurs- the failure of a number of significant firms the scheme would not be enough which is where government steps in.
Some schemes also allow for supports for a troubled firm where it can show it had a reasonable chance of survival. Designing a scheme requires a decision on which type it is to be . Paybox - pay out when a firm defaults or support type. Support and or payout.
One reading of the effect of the Ministers announcement is a simple Ministerial order increasing the existing limit to €100k plus an amendment to legislation to cover credit unions.
Funding is a separate issue either ex-post or ex-ante not directly associated with its guaranteed amount. Funding up front requires a higher rate than funding partially up front. I imagine the existing funding rate won't change by much.
Finally the guarantee is likely to be 100% of 100k per account holder rather than account. One of the most important issues is how fast a scheme will pay out. In the US depositors have access to their savings within 48 hours. But here it could take a minimum three months extendable out to nine months. The UK authorities are looking at one week. The issue is not that people’s money is covered but also that it is not locked up. So immediate or near immediate access is a must.
(if this post appears twice my apologies)
Kaplan
Brendan Burgess
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Re: Deposit guarantee scheme increased to 100% of €100k
I have tried to summarise and simplify the implications for consumers in this thread.
We can continue to speculate on the winners and losers in this thread.
Brendan
I have tried to summarise and simplify the implications for consumers in this thread.
We can continue to speculate on the winners and losers in this thread.
Brendan
Re: Deposit guarantee scheme increased to 100% of €100k
Are you sure? Their guarantee (courtesy of HMG) is 100% of all deposits and interest. Even the new Irish guarantee scheme is not that generous.
Re: Deposit guarantee scheme increased to 100% of €100k
Minister for Finance announces increase in Deposit Guarantee Limit
The press release makes reference to EU issues, the legal basis of the (extended) scheme and the deposit guarantee schemes in other countries. Surely if this was a problem then similar schemes (e.g. €103K guarantee in Italy) would also be questionable?
Minister for Finance announces increase in Deposit Guarantee Limit
Duke of Marmalade
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Re: Deposit guarantee scheme increased to 100% of €100k
I don't think we are talking about a scheme or a fund at all, though I may be forced to eat those words. We are talking about the style of Government guarantee given to Northern Rock and indeed all solvent British banks - that isn't funded. Hence the need for legislation.
Funding the scheme would be silly and would defeat the purpose of this bold move, it would be silly to leave people with the niggling doubt "but what if the fund hasn't enough?" The only "what if" is the bankruptcy of Ireland Inc. and I am afraid there are no silver bullets for that one.
Also I don't think the Government could have put together a consensus for a funded scheme across the board. Funding would also cost the consumer, rather needlessly in my view.
This would have been a very dangerous move if we had our own currency, I would see the exchange rate plummeting. But under the shelter of the Euro Brilliant move Brian!! Don't spoil it all by requiring funding.
You are of course so right as usual, Clubbie. I meant similar to Rabo in losing its advantage but there the similarity ends. No way will NR be writing to Charlie McGreevy, in fact it is itself facing a competition complaint from Danske.
I don't think we are talking about a scheme or a fund at all, though I may be forced to eat those words. We are talking about the style of Government guarantee given to Northern Rock and indeed all solvent British banks - that isn't funded. Hence the need for legislation.
Funding the scheme would be silly and would defeat the purpose of this bold move, it would be silly to leave people with the niggling doubt "but what if the fund hasn't enough?" The only "what if" is the bankruptcy of Ireland Inc. and I am afraid there are no silver bullets for that one.
Also I don't think the Government could have put together a consensus for a funded scheme across the board. Funding would also cost the consumer, rather needlessly in my view.
This would have been a very dangerous move if we had our own currency, I would see the exchange rate plummeting. But under the shelter of the Euro
Brilliant move Brian!! Don't spoil it all by requiring funding.Sorry but I can't really see the logic on how letting the savers of a country to lose all their money can really benefit taxsavers.
I personally think that this initiative is really good after all the hysteria we have lived last week. At the same time, Irish savers do not need to think on moving their money to banks from other countries which again I personally can't see how that could benefit Irish taxsavers.
As a side note. I would love if my home country had a similar initiative. As it is not the case, I will be moving some of the money I own in my home banks to Irish banks pretty soon. I imagine if other people does the same it can be good for Irish banks liquidity.
Of course, in case of economic chaos Irish taxpayers will suffer (and I know my last paragraph could be used to argue that the pain will be bigger), however I personally would prefer our government to spend Irish taxpayers money in saving Irish people savings than to see our government spending Irish taxpayers money on saving private companies, which inevitably would be the case.
Cheers.
I personally think that this initiative is really good after all the hysteria we have lived last week. At the same time, Irish savers do not need to think on moving their money to banks from other countries which again I personally can't see how that could benefit Irish taxsavers.
As a side note. I would love if my home country had a similar initiative. As it is not the case, I will be moving some of the money I own in my home banks to Irish banks pretty soon. I imagine if other people does the same it can be good for Irish banks liquidity.
Of course, in case of economic chaos Irish taxpayers will suffer (and I know my last paragraph could be used to argue that the pain will be bigger), however I personally would prefer our government to spend Irish taxpayers money in saving Irish people savings than to see our government spending Irish taxpayers money on saving private companies, which inevitably would be the case.
Cheers.
Not all Irish institutions accept deposits from non residents. I imagine that any complaints to the EU currently about this being unfair and Dansk also complaining will fall on deaf ears as we are currently living through an amazing period. We even have heard that bank mergers will not be submitted to the competition authorities such is the precariousness of the situation. Brian Lenihan made a bold move and while it is helping the banks it helps savers too. He must have thought that there was going to be a run on a bank and that wouldn't be in any of our interests. I still think the banks should be punished for created this mess in the first place but that's not going to happen either. Maybe they will now tax banks profits more highly as the price for being so incompetant.