Economist: Euro break up, what would happen to deposits

[Lightning]

Ethan 1 - Well, as Reuters said:

The move is seen as a bid to attract UK customers, by offering them the same level of deposit protection as other British banks, the paper said.

The UK Post Office has lost deposits because the deposits are Irish state guaranteed rather than FSA protected, it would seem that BOI think they can attract greater deposits with a FSA guarantee. Either that or BOI is going to sell their UK operation.

I wonder if people moving their savings offshore are aware of the FX risk they are taking, If Germany was to exit the € and reintroduce the DM, would they not be better off with a lower exchange rate, as one of the worlds largest exporters.

As The Economist said, it is likely that a new D Mark with soar after revaluation.

 

[Jim2007]

As Godfather has mentioned, and the Economist has said, if you think a Euro break up is likely, then the best place to have deposits is Germany, as a new German currency would soar after conversion but New Irish Punts would devalue, reducing the value of your savings.

If it ever came the point where the Germans were going to a Neu D-Mark, do you really think they would happily convert all the external billions on deposit with them??? Not a chance, if they did the D-Mark would be like monopoly money! If it really came to it they would do like everyone else and make a destination between residential and not residential accounts...

And before dashing off to put all your money in German banks, take a very close look at the state of German banking:
- Forced sale of the Postbank
- Indirect bail out of the Landesbanken
- Indirect exposure of German banks and Pension funds to the PIGS
- Trial of Josef Ackermann, current CEO of Deustche Bank
- Deustche Bank's reliance on it's investment banking and the desperate need to balance it with some retail banking....

People need to realise that foreign does not equal safety, it just means a different set of risk and in many cases higher risks because their ability to track and manage them is reduced.....

There is no single safe option and that means back to basics: clear financial objectives, a real understanding of the risks you are taking on and the use of diversification to manage those risks.

Good luck with that,

Jim

 

[farmerette]

If it ever came the point where the Germans were going to a Neu D-Mark, do you really think they would happily convert all the external billions on deposit with them??? Not a chance, if they did the D-Mark would be like monopoly money! If it really came to it they would do like everyone else and make a destination between residential and not residential accounts...

And before dashing off to put all your money in German banks, take a very close look at the state of German banking:
- Forced sale of the Postbank
- Indirect bail out of the Landesbanken
- Indirect exposure of German banks and Pension funds to the PIGS
- Trial of Josef Ackermann, current CEO of Deustche Bank
- Deustche Bank's reliance on it's investment banking and the desperate need to balance it with some retail banking....

People need to realise that foreign does not equal safety, it just means a different set of risk and in many cases higher risks because their ability to track and manage them is reduced.....

There is no single safe option and that means back to basics: clear financial objectives, a real understanding of the risks you are taking on and the use of diversification to manage those risks.

Good luck with that,

Jim

hi jim

silly question but if one were to put all thier savings in rabbobank , them being a dutch bank , do you think they might cut loose thier savers in this country and not cover all deposits

 

[Jim2007]

hi jim

silly question but if one were to put all thier savings in rabbobank , them being a dutch bank , do you think they might cut loose thier savers in this country and not cover all deposits

Well let me start by saying that I don't believe for a minute that the Euro will break up, in fact I expect the opposite to occur - the 16 members will be forced to adapt a much more integrated economic policy and if the pain continues a little longer the Germans will have to accept the idea of E-Bonds becoming a reality. Simply because there is no realistic alternative.

So given that, I would expect that any break up or departure from the Euro with be very much a nuclear option and in such circumstance it would be everyone for themselves so to speak. I can't see any benefit for a country, regardless of which on it is, to convert external deposits to it's new currency - it would just be asking for trouble in terms of inflation etc. Consequently it would not surprise me to see external deposits be coming completely worthless!!!

Good luck with that,

Jim.

 

[Lightning]

silly question but if one were to put all thier savings in rabbobank , them being a dutch bank , do you think they might cut loose thier savers in this country and not cover all deposits

Very very unlikely.

 

[Jim2007]

Very very unlikely.

In a break up situation, what would be the advantage to them????

And given the structure of the bank in the Netherlands, I don't see any reason for those local little banks being too concerned about what happens in Ireland at that point!

Jim.

 

[Lightning]

In a break up situation, what would be the advantage to them????

Rabo will have to follow the law of Ireland in a break up situation. They will have convert Irish domiciled EUR balances into An Punt Nua.

 

[joe sod]

what about rabo investments, surely the money is invested in stocks so even if it was converterted or the euro devalues, you are still invested in the stocks that you were invested in before which are still worth the same no matter what currency they are denominated in

 

[Jim2007]

what about rabo investments, surely the money is invested in stocks so even if it was converterted or the euro devalues, you are still invested in the stocks that you were invested in before which are still worth the same no matter what currency they are denominated in

Well I expect that you would probably come out better than if you were simply holding the cash. However you need to remember that the valuation of the stocks would also be impacted by how they are expected to perform in the new economic environment, so I would expect that the quality of the stocks held would also play an important factor in the equation.

Jim.

 

[rikt]

All this turmoil and chaos just seems to be leading everyone to "beg" for a european monetary government soon enough. If we weren't "squeezed" enough no one would want to join.

I might be completely wrong anyway as no one knows what will happen.


I also have some deposits and am very, very confused about what to do, leaving out all the conspiracy theories.

The safest thing right now might be to actually have a job, no matter what happens, assuming your company is alive&kicking, as this will provide money in whatever form it will have if the Euro breaks up.

Might want to stock up on canned food (no cooking required) and water, just in case the worst comes to happen. Sure hope not, but no harm to have some food around...you can eat it later and laugh at how paranoid you were at the time...trust me it's better to laugh about it later on than regret you didn't get anything.

 

[roker]

If you look at your €50 notes in your pocket, you will see that most of them are German beginning with a "X" in the serial number, they cannot just write these off!

 

[dannyh]

What would be the likely impact of doing nothing, leaving your deposits in a EUR denominated account in an Irish Bank if the Euro were to collapse? Would their purchasing power within Ireland remain unaffected?

 

[Swyper]

What would be the likely impact of doing nothing, leaving your deposits in a EUR denominated account in an Irish Bank if the Euro were to collapse? Would their purchasing power within Ireland remain unaffected?

No. Devaluation would be very quickly following by inflation.

 

[Igcuimhne81]

The way I see it is, in order for the euro to survive (certainly seems to be the political will) then a purging of bad debts will have to occur. But how can this occur without a collapse of the banking system?

Well, the only apparent option to me is mass consilidation of banks throught out the eurozone. What I mean by this and what I think actually happening now this minute, is that each eurozone central bank is analysising the balance sheets of all the banks under their regulatory authority. They are determining 'good banks' from 'bad banks'.

What will occur is that the 'good banks' will take on as much of the 'bad banks' as is possible (overnight mergers) without jepordising the stability of the 'good banks'. The 'bad banks' will disappear, or more specifically, the bad debt of the bad banks will be foisted on the balance sheets of the prevailing governments. This will in turn risk defaults on the sovereign countries - At this point there will be a write down of debt by sovereign sates. The euro will collapse in value but only until such an extent that 'good banks' can now avail of cheap credit from the ECB. The 'good banks' will then lend the sovereign states the new, cheap euro, to keep the euro alive. Depositors will by and large be saved, but the value of their savings will diminsh. In turn, there will be political agreements for Treaty change. The de-valued euro, will limp along, as each sovereign state batters its electorate to believe that the only option is further integration - As Merkel stated, this crisis will last ten years.

BTW, it is already being reported in Spain

See bloomberg, "Spains Rajoy Seeks proposals for Bad Bank"

 

[elcato]

No. Devaluation would be very quickly following by inflation.

Assuming the new Irish punt would devalue a lot more than other currencies in the break up. We could see a strong punt also so inflation would depend on where we are importing from.

 

[rikt]

The way I see it is, in order for the euro to survive (certainly seems to be the political will) then a purging of bad debts will have to occur. But how can this occur without a collapse of the banking system?

Well, the only apparent option to me is mass consilidation of banks throught out the eurozone. What I mean by this and what I think actually happening now this minute, is that each eurozone central bank is analysising the balance sheets of all the banks under their regulatory authority. They are determining 'good banks' from 'bad banks'.

What will occur is that the 'good banks' will take on as much of the 'bad banks' as is possible (overnight mergers) without jepordising the stability of the 'good banks'. The 'bad banks' will disappear, or more specifically, the bad debt of the bad banks will be foisted on the balance sheets of the prevailing governments. This will in turn risk defaults on the sovereign countries - At this point there will be a write down of debt by sovereign sates. The euro will collapse in value but only until such an extent that 'good banks' can now avail of cheap credit from the ECB. The 'good banks' will then lend the sovereign states the new, cheap euro, to keep the euro alive. Depositors will by and large be saved, but the value of their savings will diminsh. In turn, there will be political agreements for Treaty change. The de-valued euro, will limp along, as each sovereign state batters its electorate to believe that the only option is further integration - As Merkel stated, this crisis will last ten years.

BTW, it is already being reported in Spain

See bloomberg, "Spains Rajoy Seeks proposals for Bad Bank"

Looking at it that way I wonder if I should change my deposits into Australian or Canadian dolars...even with the exchange risk...or just buy a house with the money I have and that's that.