Government backed Deposit Insurance is like the rip cord on a parachute. It is the thing you know will save you if it all goes horribly wrong. As long as it is there you can pull it and the parachute will open saving you from otherwise certain death. The government guarantees your money if your bank goes bust. In the UK the limit is £85K per account. Double that for a joint account.
It’s just nice to know it is there. Nice to think that whatever other injustices are heaped upon us, in extremis there is still one ultimate guarantee our government has in place for us. It may be only there as a last resort but at least it is our last resort. It proves that there is at least one way left in which our governments are still trying to look out for and protect the best interests of us, the people. In this one way at least the purpose of government for the benefit of the people has not been corrupted or removed.
Or at least that is what I used to think.
A friend of mine did a little digging for me in Greece recently. What he found is that at least one major UK bank is deeply involved in capital flight from Greece and quite possibly from other European nations as well. This bank which I won’t name if you don’t mind has been advertising to Greeks-with-savings that they should switch their savings from their Greek bank to this UK bank. So far so ordinary. Unsavoury, predatory perhaps, but not illegal.
What piqued my friend’s interest was that the bank was telling prospective clients that this was not the Greek registered part of the bank family but a branch of that bank’s UK operation. For the sake of clarity let’s call the bank RBHS. No such bank exists, I’m sure you’ll agree.
RBHS was telling clients it was a branch not of RBHS Greece but RBHS UK. The money would be available to the client in Greece but on deposit in either the UK or they also offered Cyprus. Why, you might wonder? Why go to the bother of opening a branch of (or at least something connected directly to) RBHS UK when you already had a Greek operation? My friend asked. The answer he was given was that the money would then be guaranteed under the UK deposit guarantee scheme run by the FSA/FSCS (Financial Services Compensation Scheme).
So what was being sold to prospective Greek clients was that they should move their money from their Greek bank to UK registered and run RBHS because if the Greek bank went down as part of a Greek exit from the EU and euro then the Greek state might not fully cover the deposit. It might, but then again, it might not. Would the client really want to take such a risk when by simply switching banks to RBHS UK their money would be guaranteed by the British government and British tax payer?
Now just take a moment to think about that.
There is, of course, absolutely nothing illegal about this and British Banks were not and are not the only ones doing it. It was something like this that got the Icelandic banks in such trouble in the UK. But it did set me thinking.
RBHS could claim they were just doing what banks do, expanding their deposit base. But this avoids the point doesn’t it? If RBHS wanted to expand they could just as easily do it by expanding RBHS Greece. It would all be part of the global RBHS bank group? Why emphasize the advantage of it being RBHS UK?
IF RBHS UK or the whole of RBHS were to collapse, the British compensation scheme would pay money not just to British residents but to anybody resident anywhere in the world who had put their money in to RBHS UK. This is quite different to what would happen to people who had put their money in to parts of RBHS registered and regulated in their own countries. RBHS Greece would come under and be backed by the Greek scheme only, like any other Greek bank, but a branch of RBHS UK operating in Greece would be covered by the British scheme.
RBHS is gaining business and profit by using the British compensation scheme as a value added to solicit deposits. RBHS is able to say to foreign, in this case, Greek clients – at absolutely no cost to itself – your money is safer with us because it will be guaranteed by the British Scheme, itself backed by British banks, the British Treasury and ultimately the British Tax payer. What this means is that IF RBHS UK or RBHS globally were to collapse money would fly not just to UK people’s accounts but also fly off-shore to accounts of people who have never lived here, never paid taxes here and contribute nothing to this country.
Now there are all sorts of objections to what I seem to be saying here, I know. For a start the banks will say they pay for the compensation scheme. This is actually not quite true. It is true there is a levy which the banks pay in to. This levy did not and would never cover the cost of a major default. The UK scheme has a credit line from the UK banks of about £1 billion. Sounds a lot, but when Bradford and Bingley, which is tiny compared to the UK’s big banks, went under the UK compensation scheme, the FSCS, had to go to the UK Treasury and Bank of England and borrow about £15 billion. UK government borrowing went up accordingly.
The banks will say ‘Yes, but we pay the interest.’ Which is true. But we, the UK tax payers are still on the hook for the now £12 billion or so with no timetable, according to the FSCS itself, for getting that money back. In the mean time we are told (by politicians advised by the banks) that we must make austerty cuts because we are in too much debt. So WE are the ones paying in more than one sense, NOT the banks. The banks will repay us when they feel they can. Which might be a very long time. We on the other hand are required to pay at a moment’s notice, to cover the stupidity and bad management of risk-taking banks and to suffer the long term austerity our governments force upon us.
So let’s think about this again.
RBHS touts for deposits abroad by saying the UK tax payer will guarantee the money. RBHS draws up a contract with its customers which thrusts upon us an obligation to compensate these new clients wheresoever they might live and work. No one asked us. AND WE GET NO BENEFIT. If RBHS were to go down our money would go abroad. Never to be seen again because the person who got the compensation lives and is a citizen of a different country. This is why Iceland in the end said they would not compensate UK depositors. Thus UK banks like RBHS are putting us in the position the Icelanders found themselves in. And they are doing it because it profits THEM not us. We, the residents and tax payers of the UK get NOTHING from this business. We provide RBHS with a valuable guarantee with which they gain business. We get nothing but a huge liability. The money going to RBSH UK does not benefit the UK Treasury. If you think such new business will cause the banks to pay much more in tax then you need to wake up. Any extra profit will be moved off shore to a low tax territory.
Surely we get something out of it? Well, RBHS gains deposits which helps it support more loans which expand its balance sheet which makes it even more too big to fail. That is what we get out of it.
All this prompted me to reconsider what the Deposit scheme is for and who really benefits from it. Sure it does save our money in that extreme crisis moment as the depositors of Bradford and Bingley can attest. But that is the only moment when we benefit from it. On the other hand the banks benefit from it all day everyday. Sure we can’t have a two tier system where national depositors get guaranteed but all johnny foreigners get zip. So I understand the blanket nature of a bank guarantee. But it has mutated hasn’t it? There is no need for RBHS to operate ‘RBHS UK’ in Greece when ‘RBHS Greece’ already exists. There is no need for our guarantee to be brought along with salemen to entice foreign depositors to withdraw funds from their own banks so they and the bank can parasitize another nations’ deposit scheme.
Once again something that started life as a good idea, protecting you and me, (and this is true for every nation not just the UK) has again been mutated by the banks in to something it was not intended to be. It is another example of how the banks pervert everything they touch. If we had banks which were cautious, conservative and small relative to the size of the nations whose guarantee they rely upon, then we could perhaps accept the situation as it has mutated where national guarantees are increasingly tied to an international web of deposits and depositors. But our banks are none of these things. They are irresponsible, risk addicted and unstable.
The short version of all these words is that the banks deposit guarentee is only incidentally for you. It is mainly for the banks. It is part of the huge but largely hidden subsidy which every nation pays to the global private banking sector.
I would be really interested to know if anyone knows whether figures exist from the governments or the banks themselves showing how different banks’ deposits break down by country of origin?
FSCS Annual accounts and report – http://www.fscs.org.uk/uploaded_files/Publications/Annual_Reports/annual-report-2011-12.pdf