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

[bkenn14]

If the state guaranteed the deposits in AIB and BoI, there would not have been a need for anyone

to take their money out.

Try telling that to people after seeing small 2 banks default on savings and the state not stepping in and all of there life savings gone,
you would have to be a very silly depositor to leave your entire life saving in banks that everyone knew were ready to go under,
once the run started trust would be gone,

When you look back and hear lots of shareholders looking for the Depositors to take a hit because they took a hit you would want to be a very silly depositor to trust any bank in Ireland,

 

[Brendan Burgess]

It's not really shareholders calling for depositors to take a hit. Very few called for a hit and they did so as taxpayers.

 

[llgon]

You don't understand the point.
If the state guaranteed the deposits in AIB and BoI, there would not have been a need for anyone to take their money out.

I doubt the state could have legally stood over guaranteeing the deposits in two banks, while telling competitors and their customers to take a hike.

 

[bkenn14]

When you hear people who say they were not a depositor and calling for depositors to take a hit on money that the bank had loaned out or bank had used for there required security requirements time to look out,

 

[Brendan Burgess]

I doubt the state could have legally stood over guaranteeing the deposits in two banks, while telling competitors and their customers to take a hike.

I am sure that a depositor might well take a case. I am not a lawyer, but given that we introduced emergency legislation to do some unprecedented stuff, I doubt any challenge would have succeeded.

 

[bkenn14]

doubt any challenge would have succeeded.

very little Unprecedented stuff got done without agreement and fairness,
Robbing some depositors while leaving others untouched was never a runner just because of who owned the bank the deposit was in,
Not a hope and to suggest otherwise is not real,
For one the TROIKA would have none of it for a start,
The very reason the TROIKA came was to stabilize the banking system and restore confidence in it,
Restore Depositors confidence going forward I would think would be top of there list,

 

[llgon]

I am sure that a depositor might well take a case. I am not a lawyer, but given that we introduced emergency legislation to do some unprecedented stuff, I doubt any challenge would have succeeded.

I'm not a lawyer either but I disagree about the hypothetical prospects of a successful challenge. It wouldn't have been just depositors involved, and EU laws and courts would have had a major bearing if required.

It should be remembered that all the banks were regulated by the state and the Regulator, on behalf of the state, repeatedly told citizens and depositors that the banks were safe, prior to the introduction of the guarantee.

 

[llgon]

Many people did not trust banks and put their money in the Post Office where the interest rate was a lot lower.

Some people put their money in Anglo and the Irish Nationwide because they were getting higher rates.

No need to do a risk assessment. It was factored into the price.

Not sure what you're getting at here Brendan.

Higher interest rates mean higher risk?
And less protection should be expected as a result?
Is this relevant in the present day or did it only apply to 2008?

 

[TomEdison]

Higher interest rates mean higher risk?

It's generally teh case that higher interest rates mean higher risk. Investors demand a higher interest rate to compensate them for the risk they are taking relative to the risk-free alternative which, traditionally, was investing in US or UK government bonds.

And less protection should be expected as a result?

The idea is that the investor has been compensated for taking on the extra risk by getting the higher interest. They shouldn't be allowed to take the higher interest rate and then expect or demand to be bailed out by the taxpayer if the risk, that they have been paid to take, goes against them.

 

[llgon]

It's generally teh case that higher interest rates mean higher risk. Investors demand a higher interest rate to compensate them for the risk they are taking relative to the risk-free alternative which, traditionally, was investing in US or UK government bonds.

My question to Brendan was in the context of savings deposits to Irish regulated institutions.

 

[bkenn14]

The Bail out was to restore confidence in the banks and it worked,

the Shareholders got the value of there shares at bailout time,

Depositors got the value on there deposit at time of bailout,

and the taxpayer paid the price for lack of state regulation which led to the bailout,

today all Depositors get the same 100,000 euro deposit no matter how high or low the bank interest payed

If anyone is interested in campaigning for the bank with the highest interest rate should have a lower deposit guarantee than the one offering the lowest interest rate off the go I can tell them they will get laughed at so don't bother,

Can someone point me in the direction of anyone who took an interest in banking in Ireland who was campaigning on this issue before 2008/2010 or time of bail out,

no point in closing the door when the horse is gone,

 

[llgon]

and the taxpayer paid the price for lack of state regulation which led to the bailout,

This was the determination from the EU and ECB.

 

[Brendan Burgess]

My question to Brendan was in the context of savings deposits to Irish regulated institutions.

Irish deposits and and Irish banks were regulated - they were not guaranteed beyond €20,000.

So anyone with a deposit in an Irish institution should not have expected the tax payer to compensate them if the deposit taker folded.

At the time, the lowest deposit rates were available from the Post Office. They expressly advertised that they had a government guarantee.

AIB and BoI had slightly higher deposit rates because they had no government guarantee.

Anglo and Irish Nationwide were higher again.

So Anglo depositors were paid to take on more risk yet when the risk materialised, they got the government guarantee anyway.

 

[bkenn14]

this was the determination from the EU and ECB.

Yes this is what people need to come to terms with,

 

[llgon]

So anyone with a deposit in an Irish institution should not have expected the tax payer to compensate them if the deposit taker folded

But yet you assert that the government should have guaranteed the deposits in BoI and AIB at a time when their liquidity was highly questionable.

 

[llgon]

Not sure what you're getting at here Brendan.

Higher interest rates mean higher risk?

So Anglo depositors were paid to take on more risk

So that's a yes then?

And less protection should be expected as a result?

Yes again, I think. You seem to be sticking to your solution of a government guarantee for some institutions and not others.

Is this relevant in the present day or did it only apply to 2008?

I don't think you addressed this.

 

[Dr Strangelove]

No need to do a risk assessment. It was factored into the price.

C. 2009 I had low deposits and paid tax at the higher rate and was quite annoyed to be paying tax to bail out people richer than I was.

I’ve completely changed my mind since then. It’s bonkers to expect retail consumer depositors (most of whom know next to nothing) to read banks’ financial statements and the like. These entities were all regulated.

Shareholders by contrast are taking a risk of zero every day there is trading.

 

[Brendan Burgess]

You seem to be sticking to your solution of a government guarantee for some institutions and not others.

Absolutely.

It's tough. But we had to guarantee the systemic banks - AIB and BoI.

And, as it happened, it did not cost us that much.

 

[Brendan Burgess]

Is this relevant in the present day or did it only apply to 2008?

Absolutely. The guarantee today is up to €100k. If a bank implodes, then anyone with more than that should lose out.

However, it's less likely as the bondholders will be bailed in.

But it's still possible.

 

[Brendan Burgess]

It’s bonkers to expect retail consumer depositors (most of whom know next to nothing) to read banks’ financial statements and the like. These entities were all regulated.

It's bonkers to expect the taxpayer to guarantee anyone's investment other than a loan to the government itself.

They are regulated. They are not guaranteed.