Irish Times - "Is it time to increase protection on savings?"

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ClubMan

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Is it time to increase protection on savings?

Savings of up to €100,000 are currently protected but the UK is considering raising this to around €128,000
www.irishtimes.com
Paywalled, but some of the gist...
 
I think that the most beneficial change would be to increase broker protection. In most EU countries broker protection is €20k while in the USA it is 500k USD for cash and securities in total of which 250k USD max is for cash.

The EU should bring the broker cash protection level in line with the bank deposit insurance protection level to encourage investments and promote deposit competition by making people feel more comfortable with broker cash deposits, money market products and investments.

In addition, the broker and bank insurance level, should be annually index-linked, to the EU average inflation rate, so we don't have to periodically revisit this topic.
 
Increase in coverage is not cost free as the deposit guarantee fund has to be larger.

All else equal it would lead to very slightly lower interest rates for the depositor.

Lightning said:
In most EU countries broker protection is €20k
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I think a lot of consumers may not understand the difference.

From the same app within seconds I can place funds in a money market fund (protection €20k) or a current account (protection €100k).
 
@Brendan Burgess

Well, I’m just making the point that we (Ireland) can’t unilaterally raise the level of deposit protection.

TBH I think folks get way too exercised about deposit protection schemes, at least as they relate to the pillar banks. In an Irish context, they are simply too big to fail.
 
I’d endorse both of the suggestions made by @Lightning. Accepting that both the DGS and the ICS are controlled at European Level, it would make very good sense if both of these were index linked by default, avoiding step increases and the intermediate declines in real value**. The European Commission proposed raising the ICS to €50,000 in 2015 however the proposal was not approved and was subsequently withdrawn. Time was when investment companies clients were predominantly wealthy and sophisticated investors, or other individuals with small stakes taking a punt. Now there are many individuals with limited financial knowledge placing large sums with investment companies etc and who really should be afforded better protection, certainly to the same level as the DGS.
Sarenco said:
TBH I think folks get way too exercised about deposit protection schemes, at least as they relate to the pillar banks. In an Irish context, they are simply too big to fail.
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Cast your mind back; AIB has sailed close to the wind on a number of occasions including ICI and Rusnack, and that’s aside from the post 2008 Banking Crisis and some pretty substantial fines, and has been bailed out on at least two occasions. The next time they end up in the doodoo the State may not be in a position to rescue them in toto, so having a backstop for personal depositors makes sense. It also covers a plethora of non-pillar outfits.

** Seperate topic but default indexation should also be in place for most lot of other payments, allowances, rates, bands and charges controlled by the state. It would eliminate a lot of the annual budget circus, enhance fairness and eliminate stealth taxation.
 
AIB and BOI were both toast in 2008.

And the State effectively went bust trying to save them.

Did it matter to depositors?

Did any depositor lose anything?
 
Is there a fear next time around if a bank went bust the state will give Depositors a IOU,
If there is another 2008 and it is the result of bad Irish Government oversight not sure next time around anyone will come rushing in to bail out banks without depositors taking a haircut,
The state has taken on a lot more debt since 2008 wont be as easy to sort if there ever is a next time,if a bank comes knocking on government door
 
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Sarenco said:
AIB and BOI were both toast in 2008.

And the State effectively went bust trying to save them.

Did it matter to depositors?

Did any depositor lose anything?
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Depositors lost nothing because the state bailed out the banks.

The point of a deposit guarantee scheme is that, if the state had made the opposite choice and had not bailed out the banks, the depositors (at least, those with less than the guarantee amount on deposit) would still have lost nothing.

The higher the level of the guarantee amount, the easier it is, politically speaking, for a state to decide not to bail out a bank, but to let it fail. Most ordinary voters who have a stake in the bank do so as depositors, and they will not lose money; it's the holders of bonds and other securities issued by the bank that will lose, and relatively few voters will be in that position.

Tl;dr: a robost deposit guarantee scheme makes it easier to allow banks to fail. (Not necessarily easy, but easier than it would otherwise be.)
 
It's 100k per institution, and Irish consumers do have access to a fair few banks around Europe. I guess the IT churned out an article on this as there's still a fear from consumers here towards leaving deposits anywhere other than BOI, AIB, and PTSB.

Broker cash levels in the EU are much lower at only 20k protection. In contrast, in the UK it seems cash held with brokers is protected at the same level as deposits held with banks, which is 85k protected by the FSCS.
 
Interesting discussion.

To answer the question, personally I don't have any objection to increasing insurance guarantee on deposits. However, I suspect, somewhere in the region of 98%+ of bank account deposits, have far, far, less than €100,000.

My own bank account is way short of that and I am retired, loan/debt free, with a substantial pension lump-sum and provision.

So, to increase the limit? For who? For what purpose?

I do take some umbrage at spits that it was State who actually bailed out the 98%+ depositors (in my estimation, happy to proven wrong).

There is a simple reality test, here - Institutions (State or Private) + Individuals, families and communities, etc cannot exist separately.

They must CO-EXIST, otherwise, not exist at all.
 
But the main depositors who were bailed out were the small number who took the high interest rates offered by Anglo and Nationwide.

I know, I was one of them!
 
charlie007 said:
So the state gave the money to the banks, who in turn gave it to the depositors.

So who was bailed out again?
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The bondholders were bailed out.

There's a difference — a big difference — between:

(a) letting the bank go under, and paying out the depositors with taxpayer funds (to a max of 100k per depositor); and

(b) bailing out the bank by giving it enough taxpayer funds to pay off all its creditors — depositors (in full) and bondholders (in full).

Option (b) is what we went for. And option (b) is much, much, much more expensive than option (a).
 
TomEdison said:
Option (b) is what we went for. And option (b) is much, much, much more expensive than option (a).
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That's an interesting point. I remember the debates at the time

Option A is a straight payout but it would have left us with no Irish banks and relying on a couple of UK/EU banks to provide banking services here. All of which subsequently left.

Option B was a (admittedly poor looking at the time) investment with some potential upside return down the line and ensured some indigenous banks remained.


Option B cost us €65 billion. Far from cheap. Deposits covered by the bank guarantee were almost 3 times that (€173 billion). Now in a world without such a guarantee not all of those deposits would have been covered by a DGS (ineligible business deposits and balances over €100k) but would it be significantly less than what we spent? I doubt it.

A less quantifiable cost with option A is the panic out would have caused. If 1 retail bank collapses it's a huge story but 3 (or 6 depending on your view of what counts as retail) is massive. In that situation you don't stop to muse over where is safe, you and everyone else, runs to the bank.

They weren't great options and avoiding the mess in the first place with better regulation would have been the better path not taken. But looking back and burning the bond holders feels a little bit like a Brexit moment i.e., short term gain (or rather respite) but at a cost of long term pain.
 
On the DGS limit, while they weren't referencing the scheme itself, I once heard someone say:

... out of that 100,000 I run a home in Dublin, Castlebar and Brussels. I wanna tell you something, try it sometime…

So if you lose out because you're over the limit when a bank fails, your suck it up and come to terms with the fact you had more money than sense. But rest assured even after the DGS pays out that will still be the case! :⁠-⁠)
 
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