Bank Deposits

roosh

Apologies if this has been asked already, but does anyone know how safe bank deposits are? I know there's a bank guarantee in place at the moment, but if we have to default on our national debt, will that have an effect on the guarantee (presumably yes) and what would that mean for depositors?

Also, anyone know if any one bank is relatively safer than the others? In particular would the Permanent TSB be severely affected by us defaulting on our national debt?

cheers in advance!

amacca

Expect there will be many more educated, informed reply to this question as its not an easy one to answer

in reverse order and imo

1) I would place permanent tsb as being safer than boi or aib in the sense that they are backed up by an insurance business as well- but this could be a incorrect

2) at the moment all deposits in irish banks are still guaranteed by the government blanket guarantee and an earlier pre existing 100,000 euro guarantee I think - credit unions same afaik

question is...do you think this guarantee is worth the paper its written on?

thats really up to you to do as much research on as possible.....i wish you luck

3) Non irish banks are baked up by other guarantees

eg: Ulsterbank: approx 50k sterling english guarantee afaik
NIB: owned by danske bank so under the danish deposit protection scheme guarantee for about 60k euro afaik
Rabobank: approx 60k euro under dutch guarantee scheme

(all guarantees so far per depositor afaik)



as a first step towards protecting yourself, I think that not putting all your eggs in one basket is a good idea.......imo splitting up deposit up into equal amounts and spreading over different institutions (under different guarantee schemes) can only be a good idea.


BUT

I would be much less worried about losing deposits than finding them utterly devalued over the next couple of years/months


suggestions of a euro collapse in the face of sovereign defaults in the eurozone in coming years (months?)or a two tier euro could mean even though you would still have it in the bank it would buy you much less.



some people on here have suggested that putting it in an offshore account (eg with HSBC or Lloyds or Ameritrade) in swiss francs could preserve the value of the euros you now hold

again the decision is yours...and I would treat anyone who tells you what to do with suspicion and do your own research


eg: if the euro did collapse for instance.....how would that affect HSBC offshore....how safe are their deposits....afaik they are covered by the jersey guarantee for about 60k euro

how much can you trust this guarantee?


would it perhaps be better to have deposits in irish banks as you are living in this country and would get something back from the irish government long term in lieu of losses rather than nothing from Jersey scheme if financial Armageddon (very unlikely but a possibility) did happen.


in a way the question is a bit of a "how long is a piece of string" question and Ive been thinking about it for some time and this is as far as I've got, riddled with uncertainty and doubt and unsure what the right thing to do is


As mentioned before I wish you luck and I hope someone here can dispel some of the clouds of doubt Ive just typed.

sellerbarry

Excuse me, if this is a stupid question but, just Say:

I have 90k in Aib.
Government owns Aib
Aib go bang because govt can't borrow anymore from IMF etc to prop them up.

Question is: Where will the govt get 90k to pay me back if they can't get money to prop up bank in first place?
Thanks;)

amacca

sellerbarry wrote: »

Excuse me, if this is a stupid question but, just Say:

I have 90k in Aib.
Government owns Aib
Aib go bang because govt can't borrow anymore from IMF etc to prop them up.

Question is: Where will the govt get 90k to pay me back if they can't get money to prop up bank in first place?
Thanks;)

I cant see where they are going to get it if the ecb/eu/imf dont supply it ...at that stage (were it ever to happen which seems unlikely at this point though not impossible) I presume the omnipotent omniscient "markets" wouldn't be willing to lend us money at any interest rate.

I presume you would get some form of an iou from the govt and you could then debate if the paper it was written on was worth more than the iou itself

You could also debate what sort of timescale your money would be returned to in and if the sum returned would take account of inflation (dont make me laugh) or perhaps you would get something in lieu (unlikely)

warning: the value of your deposit may go down

Scofflaw

sellerbarry wrote: »

Excuse me, if this is a stupid question but, just Say:

I have 90k in Aib.
Government owns Aib
Aib go bang because govt can't borrow anymore from IMF etc to prop them up.

Question is: Where will the govt get 90k to pay me back if they can't get money to prop up bank in first place?
Thanks;)

That sort of confuses two things - the banks rolling debt 'float' and the value of their assets.

Bear with me here!

Banks' assets are in the form of loans from the bank to other people as well as various financial instruments. Liabilities are in the form of deposits as well as loans to the bank. Banks only keep a relatively small amount of liquid cash around at any given time.

So, if you take AIB - AIB has assets of €177.88bn, and liabilities of €166.68bn. That looks good enough, so what's the problem? How come the government has to keep propping it up if its assets exceed liabilities?

There are two major points here. First, that the banks never keep enough cash on hand to meet their own debts as they fall due - they rely, instead, on borrowing to pay their debts, rolling over the debt into new debt instead of paying it off. As long as their regarded as credit-worthy, that's fine - the bank simply keeps all the debt balls in the air, trading old debt for new, and paying off the occasional tranche of old debt in full. They don't, in general, use their assets directly to pay off their liabilities, because their liabilities fall due at different times from their assets yielding income.

Second, it turned out that Irish bank assets were over-valued - some of those 'assets' having been counted twice, and a good chunk of them (in AIB and Anglo in particular) being loans into the property sector which had little chance of being repaid. So, when in 2007 AIB stated liabilities as €148.6bn and assets as €158.5bn, those assets were being overstated.

Naturally, that made everybody very nervous - and the financial community was already nervous - so other financial institutions stopped lending to the Irish banks.

Now, when other banks stop lending to a bank, that bank has a problem. It can no longer keep the balls in the air. Now, when debt falls due, the bank has to repay it out of capital reserves and income from its assets - and the income from assets rarely matches the debt falling due. A bank might be expecting €1bn in income in a given month, but have debt liabilities of €20bn falling due that same month - sure, the next month, it's expecting €4bn in income, but that doesn't stop the debt that's falling due from falling due. It either pays the difference by (1) borrowing it - the usual method - or by (2) dipping into cash/capital reserves/assets. Or it can (3) default, whereupon it's a dead duck, because nobody will lend to a bank that defaults.

So the ECB has been lending to the Irish banks as per (1) to keep them going, because nobody else trusts them.

The banks have also to be purged of the troublesome assets - the loans to the property sector - which is where NAMA comes in. NAMA has been taking over those of the banks' nominal assets which consist of property sector loans, because as long as the banks' "assets" statement contain those loans everybody knows that their asset statement isn't worth what it says it is.

However, NAMA doesn't pay the bank the value the bank had written in against that loan on their assets statement. Instead it pays what it thinks is really likely to be repaid from that loan. So it takes assets nominally valued at €10bn from AIB, and pays AIB €5bn.

As a result, AIB's assets shrink, and other financial institutions are even more wary of loaning to AIB, because there's a risk that AIB's assets will fall below liabilities, and AIB will be insolvent.

This is where the government recapitalisation programme comes in - it has to make up the NAMA difference, by putting €5bn into AIB. Naturally enough, it doesn't put in cash - it puts in a government IOU (promissory note) instead. As long as the bank keeps operating, though, and is able to borrow to meet its debts, those government IOUs don't get called on.

Which takes us back to the ECB, still lending to the Irish banks to keep the banks from going under and the Irish government from having its IOUs called in.

Now, if the ECB finally says "enough of this" and stops lending to the Irish banks, the balls all fall out of the air, and the bank gets wound up.

What happens if the bank gets wound up? Like any business, assets are called in and sold off to meet liabilities. If the bank is insolvent - liabilities are greater than assets - then somebody isn't going to get paid what they're owed.

Who is that somebody? The answer is, anyone bar senior debt holders and depositors (that's you). Your deposit, after all, is part of the liabilities of the bank that the assets will be sold to meet, and meet first, because depositors and senior debt holders are at the front of the creditor queue.

So the question becomes, does AIB have sufficient assets to meet its obligations to senior debt holders and depositors?

Let's say AIB's assets get written down by 25% - so instead of €177.8bn, they actually have assets worth €133.35bn. Their liabilities are still €166.68bn, so there's a €33.33bn shortfall. Do they have enough to cover deposits and senior debt in that case?

Allied Irish has about €5.9bn of senior unsecured debt and €12.1bn of senior secured notes, according to Bloomberg, and it has €81.308bn in deposits, so it seems to have enough to cover the senior debt and depositors even with a 25% writedown of its assets.

If they didn't have enough, the government guarantee gets activated, and your deposit is covered by the government - again, because AIB does have assets, even if they're worth less than it says on the balance sheet, the government doesn't pay all of it - although, actually, it probably will pay all of it up front, and recover the balance from AIB as it's wound up.

What of the government in turn doesn't have enough to cover the deposit? The answer is that it will borrow the money to cover it. Currently, that would probably mean dipping into the €25bn of bank contingency money in the bailout facility.

Depositor protection is a major issue for governments (and the EU) - almost anything and everything will be done to protect your money. In the case of Iceland, the Icelandic government burned senior debt holders (and foreign depositors) rather than stiff depositors, and the same happened recently in the US with Washington Mutual. The laws were simply changed to prefer depositors over senior debt holders, and that would probably happen here too.

However, it's worth pointing out that governments only consider it worth changing the law to protect their own citizens. Technically, no EU country can discriminate between its own citizens and other EU citizens, so in theory no other EU country's bank will stiff Irish depositors while bailing out their own, but in the event of the widespread bank failures that would probably follow the collapse of Irish banks, that may not be honoured quite as quickly as it could be. In the case of non-EU banks, of course, it doesn't apply at all.

TL;DR - there isn't anywhere safe if a bank the size of AIB goes down. If your deposit is in Ireland, the Irish government will do its best to protect it (or face Leinster House being burnt to the ground) - if your deposit is in another country, that country's government may or may not protect your money to the same extent.

cordially,
Scofflaw

sellerbarry

Thanks Scoff. My head hurts after reading that.;)

Scofflaw

sellerbarry wrote: »

Thanks Scoff. My head hurts after reading that.;)

And that's the very basic version! The big political issues these days - the EU, economics, finance, climate change, resource depletion - are extremely complex. Reminds me of the comic 200AD, which had a disease called "future shock" - people "went futsy" when their brains just couldn't cope with the complexity of the world they were living in.

We do surprisingly well, though, for a bunch of naked tailless apes whose brains are evolved for hunting, gathering, and social relationships in a group of at most 150.

There's really a mismatch between the current legislative norms of debt protection and what people want, though. In normal times it wasn't an issue, but the crisis has shown it up. In the longer run, I suspect we'll see depositors moving up the queue ahead of senior debt holders, with even senior debt holders expected to share part of the burden if things go pear-shaped. The downside of that, though, is that it makes credit more expensive overall - although, looking at the crisis, maybe that's not that much of a downside.

cordially,
Scofflaw

later12

Scofflaw wrote: »

I suspect we'll see depositors moving up the queue ahead of senior debt holders, with even senior debt holders expected to share part of the burden if things go pear-shaped. The downside of that, though, is that it makes credit more expensive overall - although, looking at the crisis, maybe that's not that much of a downside.

More expensive credit is an inevitability in this country, not just from future losses incurred both by financial institutions, taxpayers and senior bond holders (which is sadly inevitable, but potentially manageable), but also through our own future banking policy.
For example, many peoplenow worry that Ireland is at risk of becoming overly regulatory. That might sound like a pardadox to some, but we must remember that what we had here was not light reguklation, it was an absence of regulation. Light regulation in itself is not bad. I'm not saying Laissez Faire, exactly; perhaps Posez des Conditions et Laissez Faire.

To give you an example of what worries people in the banking industry, and ironically enough even investors at some point, is to see the Central Bank saying (to AIB) OK guys, 14%CT1 Capital by next February. Don't anybody seriously tell me that imposing such draconian conditions on banking isn't going to negatively effect things like mortgage and SME lending.

All I am saying is that, yes, things went wrong. Yes, the irish regulator f*cked up, and so did banks and so did risk anlaysis. But the answer is not to go to the other extreme and 'overcapitilise' our banks in the long term as is now being suggested, or to introduce other equally populist moves for little real effects of security, little benefit to the economy (if not imposing a negative effect in the long term) and what seem to many, like a cheap vote getter.

So AIB (for example) has to raise 13 billion euros altogether in capital, capital that will be of no serious help to struggling businesses and houselholds into 2011 but raises the 'apearance' of doing 'something'.

Credit is not bad, people, neither are low interest rates. Money is nothing to afraid of nor angry about - human stupidity caused this mess, but stupidity is not going to get us ut of it.

Scofflaw

later10 wrote: »

More expensive credit is an inevitability in this country, not just from future losses incurred both by financial institutions, taxpayers and senior bond holders (which is sadly inevitable, but potentially manageable), but also through our own future banking policy.
For example, many peoplenow worry that Ireland is at risk of becoming overly regulatory. That might sound like a pardadox to some, but we must remember that what we had here was not light reguklation, it was an absence of regulation. Light regulation in itself is not bad. I'm not saying Laissez Faire, exactly; perhaps Posez des Conditions et Laissez Faire.

To give you an example of what worries people in the banking industry, and ironically enough even investors at some point, is to see the Central Bank saying (to AIB) OK guys, 14%CT1 Capital by next February. Don't anybody seriously tell me that imposing such draconian conditions on banking isn't going to negatively effect things like mortgage and SME lending.

All I am saying is that, yes, things went wrong. Yes, the irish regulator f*cked up, and so did banks and so did risk anlaysis. But the answer is not to go to the other extreme and 'overcapitilise' our banks in the long term as is now being suggested, or to introduce other equally populist moves for little real effects of security, little benefit to the economy (if not imposing a negative effect in the long term) and what seem to many, like a cheap vote getter.

So AIB (for example) has to raise 13 billion euros altogether in capital, capital that will be of no serious help to struggling businesses and houselholds into 2011 but raises the 'apearance' of doing 'something'.

Credit is not bad, people, neither are low interest rates. Money is nothing to afraid of nor angry about - human stupidity caused this mess, but stupidity is not going to get us ut of it.

Sure - the availability of credit, on reasonable terms, across the economy, is a prerequisite for the growth expected in current systems. I've a post somewhere else that considers the function of credit in an economy - in brief, that without it innovation and entrepreneurial activity is sharply curtailed.

As far as bank regulation goes, I'd settle in a sense for the opposite of Posez des Conditions et Laissez Faire - I'd rather see consistent oversight of prudence in lending and valuation of assets. If that involves the minimisation of certain very opaque forms of derivatives and a limitation of the level of leveraging, that would be, I think, an acceptable price - pruning off some of the casino aspects of banks.

cordially,
Scofflaw

Psychedelic

Quick question: is money in a current account counted as a deposit? Like if you have a few grand in a current account would it be covered under the bank guarantee?

Scofflaw

Psychedelic wrote: »

Quick question: is money in a current account counted as a deposit? Like if you have a few grand in a current account would it be covered under the bank guarantee?

Yes - that money is 'on deposit' with the bank.

cordially,
Scofflaw

johnnyskeleton

mangaroosh wrote: »

Apologies if this has been asked already, but does anyone know how safe bank deposits are? I know there's a bank guarantee in place at the moment, but if we have to default on our national debt, will that have an effect on the guarantee (presumably yes) and what would that mean for depositors?

Also, anyone know if any one bank is relatively safer than the others? In particular would the Permanent TSB be severely affected by us defaulting on our national debt?

cheers in advance!

This is asked over and over again. Do you own research and don't, under any circumstances, treat anyone on the internet as in any way more knowledgable than yourself. No one here knows what the right or wrong answer is. Sure, people can set out the alternatives, but don't follow blindly anyone who says "Irish banks are perfectly safe" or "Irish banks are not safe at all" or anything in between.

Your assessment should be based around:
1) whether you think the Irish banks are solvent;
2) whether you think the Irish state is solvent;
3) whether you think the Irish state is likely to give up the guarantee;
4) whether you agree that you should always hedge your bets to best protect your savings.

later12

Actually while I don't exactly agree with the above post, especially since the information Scofflaw has given is so articulately accurate (and the same goes for much of the general information in the sticky on 'what went wrong'), there does exist an apparent lack of knowledge about these matters among banking customers.

In fact, there has been a blatant lack of communication on behalf of the Government and the industry itself towards banking customers.

Scrolling through the goals of the new financial regulator we have 'contribute towards financial stability', 'ensure that the best interests of customers are protected' and providing economic advice - to Government. What about providing economic advice to everyday depositors out earning a living and fearing for their life savings?

Unfortunately, most people do resort to media outlets like boards.ie or the papers or even what they hear down the pub. And to deny that these rather biased outlets can harm public confidence, given that it is sometimes in their interests to be inflammatory, outrageous or inaccurate in their summaries and predictions, is ludicrous.

There should be some appointed arm of the financial regulator which acts to give independent advice and assurances to bank depositors who are genuinely worried about their savings, and who are forced to receive financial advice based upon what they read in The Irish Times, or The Daily Mail, or God Forbid, from some headline hungry ginger haired economist.

Chris_5339762

The thing that I cant grasp is that what if a bank DOES go down, and all the deposits in the entire bank are covered by the guarantee scheme. Where are the gov going to get the money to pay people back from? They could never raise that amount.

ei.sdraob

Chris_5339762 wrote: »

The thing that I cant grasp is that what if a bank DOES go down, and all the deposits in the entire bank are covered by the guarantee scheme. Where are the gov going to get the money to pay people back from? They could never raise that amount.

from you of course via taxes, you will get a big shiny IOU from the government and not see your money for a long time, if ever, thats of course if the ECB doesnt decide to print this money as emergency measure, but this way everyone holding the euro pays as its devalued, the Germans wont like that course of action and they are the ones exerting most pressure on the ECB now.

the only way they could raise it is by getting a loan at high rate from somewhere, a loan which you and your children will pay for via more taxes and less services
bigger the fool who trusts this lot with their earnings/savings. vote with your wallet and choose banks that weren't as careless.

now any bets this post will be deleted by staff for pointing out the emperor has no clothes ....

P. Breathnach

Scofflaw wrote: »

...
As far as bank regulation goes, I'd settle in a sense for the opposite of Posez des Conditions et Laissez Faire - I'd rather see consistent oversight of prudence in lending and valuation of assets. If that involves the minimisation of certain very opaque forms of derivatives and a limitation of the level of leveraging, that would be, I think, an acceptable price - pruning off some of the casino aspects of banks.

I take a similar view. We don't hear enough use of the phrase "vanilla bank", but I really would like to see banks adopt the policies and practices that worked well for generations. The huge shocks that have shaken financial systems worldwide, and particularly our one, are in part caused by the use of complex instruments which were used to shift risk around while maintaining a pretense that all risk had been magicked out of the system.

Our big banks put themselves in jeopardy in a relatively simple way: they overexposed themselves in financing a property bubble. Suggestions that there is a derivative problem seem to be overblown.

I wonder about the IFSC. There are major financial institutions trading there as brass-plate operations, and some of them are very much involved in heavy leveraging. Getting them in there was the purpose -- perhaps the main purpose -- of our light-touch approach to regulation, and the approach did work. But these institutions are now part of our bank landscape, and in some ways shape the way we are perceived.

Tech3

Chris_5339762 wrote: »

The thing that I cant grasp is that what if a bank DOES go down, and all the deposits in the entire bank are covered by the guarantee scheme. Where are the gov going to get the money to pay people back from? They could never raise that amount.

The guarantee doesnt cover all deposits. Only up to €100,000 per account. Anything above that is not guaranteed. I wouldnt keep all my savings in one bank. Spreading to shares and commodities is a much safer option in the current climate.

But on the point of the government being unable to pay back deposits, I would suspect the bank will cover a certain amount of deposits before the guarantee comes into effect.

SkepticOne

johnnyskeleton wrote: »

This is asked over and over again. Do you own research and don't, under any circumstances, treat anyone on the internet as in any way more knowledgable than yourself. No one here knows what the right or wrong answer is. Sure, people can set out the alternatives, but don't follow blindly anyone who says "Irish banks are perfectly safe" or "Irish banks are not safe at all" or anything in between.

Your assessment should be based around:
1) whether you think the Irish banks are solvent;
2) whether you think the Irish state is solvent;
3) whether you think the Irish state is likely to give up the guarantee;
4) whether you agree that you should always hedge your bets to best protect your savings.

Very good advice here, imo.

If there's one thing we can all agree on with absolute certainty it is this: if it turns out that some time in the future deposits are really under threat, the official advice to the ordinary punter will be that they are totally safe regardless of the actual truth of the matter.

They will continue to tell you this while corporate deposits and bond holders have been exiting the market. In fact during the recent run up to the bailout, it has been these customers of the banks that were leaving in droves, the ones that read the financial news, not small retail depositors.

If there is any major run and people lose a large portion of their deposits, then the same experts that told you that your deposit was totally safe will turn around and tell you that it is up to you to spread your risk and that you have only yourself to blame for not doing your own research.

SkepticOne

Chris_5339762 wrote: »

The thing that I cant grasp is that what if a bank DOES go down, and all the deposits in the entire bank are covered by the guarantee scheme. Where are the gov going to get the money to pay people back from? They could never raise that amount.

Some sort of European rescue fund might be set up to compensate Irish depositors with the intention of preventing contagion to other countries. Many feel that the bailout is partly about preventing such a situation from developing in the first place.

Scofflaw

tech2 wrote: »

The guarantee doesnt cover all deposits. Only up to €100,000 per account. Anything above that is not guaranteed. I wouldnt keep all my savings in one bank. Spreading to shares and commodities is a much safer option in the current climate.

But on the point of the government being unable to pay back deposits, I would suspect the bank will cover a certain amount of deposits before the guarantee comes into effect.

In fact, a fund was set up, back in 1994, following the Directive on Deposit Guarantee Schemes, which at that time guaranteed €20,000 per depositor per institution. A Directive adopted in March 2009 upped the level of protection from 20k to 100k, upping the proportion of deposits covered from 88% to 95%.

Further, as has been pointed out, the banks do have assets - it's not simply the case that there's nothing to offset the liabilities, a point which is sometimes missed when people cite only the liability figures.

SkepticOne wrote:

They will continue to tell you this while corporate deposits and bond holders have been exiting the market. In fact during the recent run up to the bailout, it has been these customers of the banks that were leaving in droves, the ones that read the financial news, not small retail depositors.

Actually, the ones not protected by the guarantee in the first place - institutional and corporate deposits larger than €100k, and some of those that shifted over from the UK:

The 1994 Directive introduced minimum harmonisation for Deposit Guarantee Schemes; this meant that there were only a few basic requirements for Member states to follow up. As a result, Deposit Guarantee Schemes between countries vary significantly on the level of coverage, the scope of covered depositors and products and the payout delay. Also, the financing of schemes has been left entirely to Member States. This has turned out to be disruptive for financial stability and the proper functioning of the Internal Market. For example, when the crisis deteriorated, many depositors shifted money in the UK from British banks to branches of Irish banks in the UK, since Ireland had unilaterally introduced unlimited deposit guarantees. This led to a severe and abrupt draining of liquidity from the British banks, making them very vulnerable.

And now they're draining back out again, because the UK's banks look more stable than ours. That's why AIB's customer deposits look like this:

2007: €81.308bn
2008: €92.604bn
2009: €83.395bn

cordially,
Scofflaw

ei.sdraob

Scofflaw wrote: »

Further, as has been pointed out, the banks do have assets - it's not simply the case that there's nothing to offset the liabilities, a point which is sometimes missed when people cite only the liability figures.

Those assets are often compromised of mortgages which can not be liquidated on short notice and some are not worth as much as they used to hence NAMA

SkepticOne

Scofflaw wrote: »

Actually, the ones not protected by the guarantee in the first place - institutional and corporate deposits larger than €100k, and some of those that shifted over from the UK:

And now they're draining back out again, because the UK's banks look more stable than ours. That's why AIB's customer deposits look like this:

2007: €81.308bn
2008: €92.604bn
2009: €83.395bn

Amounts over 100K are covered by the ELG which runs until June 2011 and most likely will be continued after that. The problem is what does that or any other guarantee when the country is insolvent?

SkepticOne

ei.sdraob wrote: »

Those assets are often compromised of mortgages which can not be liquidated on short notice and some are not worth as much as they used to hence NAMA

I think one of the big mistakes was that the powers that be simply looked at the balance sheets and said "yes, well that all appears to be in order", without ever questioning the quality of those assets. Hence we've had a succession of quick fixes designed to kick the can a bit further down the road. I think perhaps Scofflaw may be making the same mistake on this thread.

ei.sdraob

SkepticOne wrote: »

I think one of the big mistakes was that the powers that be simply looked at the balance sheets and said "yes, well that all appears to be in order", without ever questioning the quality of those assets. Hence we've had a succession of quick fixes designed to kick the can a bit further down the road. I think perhaps Scofflaw may be making the same mistake on this thread.

I think he is making the same mistake, the banks are not illiquid they are plain insolvent, after pouring/committing to 60 billion into Anglo alone (according to the last RTE Primetime) that much should be obvious after 2 years.

The banks loans ("assets") are just of very bad quality due to all the careless lending,
* you have something like only 20% of NAMA loans performing
* loans were given out unsecured or backed by the same collateral multiple times
* people lying about their incomes
* banks giving out 100% + mortgages
* subprime mortgages (despite claims that no subprime here) given to people who couldnt afford one in event of one of the spouses loosing job, hell my own relatives got a mortgage and they are near retiring, crazy stuff!


tl:dr: its an insolvency crisis not a liquidity one. and now that the banks and the state are one, the whole state is being brought down by the weight of their "assets"

jmayo

sellerbarry wrote: »

Excuse me, if this is a stupid question but, just Say:

I have 90k in Aib.
Government owns Aib
Aib go bang because govt can't borrow anymore from IMF etc to prop them up.

Question is: Where will the govt get 90k to pay me back if they can't get money to prop up bank in first place?
Thanks;)

Chris_5339762 wrote: »

The thing that I cant grasp is that what if a bank DOES go down, and all the deposits in the entire bank are covered by the guarantee scheme. Where are the gov going to get the money to pay people back from? They could never raise that amount.

They aren't going to get the money.
If one our main really systemic banks (AIB, BOI) go then it can have knockon affect throughout Europe and God knows what happens.

As ei.sdraob so well points out you will probably get an IOU and you might see your money in 20 years time and it will not be adjusted for inflation.

ei.sdraob wrote: »

from you of course via taxes, you will get a big shiny IOU from the government and not see your money for a long time, if ever, thats of course if the ECB doesnt decide to print this money as emergency measure, but this way everyone holding the euro pays as its devalued, the Germans wont like that course of action and they are the ones exerting most pressure on the ECB now.

the only way they could raise it is by getting a loan at high rate from somewhere, a loan which you and your children will pay for via more taxes and less services
bigger the fool who trusts this lot with their earnings/savings. vote with your wallet and choose banks that weren't as careless.

now any bets this post will be deleted by staff for pointing out the emperor has no clothes ....

So far the only one who has come near to answering the actual question unlike some who skirted around the topic by gaving us very good explanation on Fractional-reserve banking, how the banks assets were overvalued and thus the banks are being kept afloat by ECB.

SkepticOne wrote: »

Some sort of European rescue fund might be set up to compensate Irish depositors with the intention of preventing contagion to other countries. Many feel that the bailout is partly about preventing such a situation from developing in the first place.

I wouldn't hold my breath on that one. :rolleyes:
If one of our big two banks go belly up then the other EU countries will be diverting their energies to looking after themselves.

Scofflaw wrote: »

In fact, a fund was set up, back in 1994, following the Directive on Deposit Guarantee Schemes, which at that time guaranteed €20,000 per depositor per institution. A Directive adopted in March 2009 upped the level of protection from 20k to 100k, upping the proportion of deposits covered from 88% to 95%.

But is that directive not directing states to adopt a guarantee EU 100,000 per depositor by December 2010, rather than putting a EU wide deposit guarantee fund in place ?
Thus Irish depositors in Irish banks would be guaranteed by Irish state rather than some European fund ?
There are a few question marks over that deposit guarantee directive that should be highlighted.

Notice reference to aggregate deposits and not deposits per depositor per institution.


http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32009L0014:EN:NOT

Sections from Directive 2009/14/EC of the European Parliament and of the Council
of 11 March 2009

amending Directive 94/19/EC on deposit-guarantee schemes as regards the coverage level and the payout delay

(3) The current minimum coverage level provided for in Directive 94/19/EC is set at EUR 20000 with the option for Member States to determine higher coverage. However, this has proved not to be adequate for a large number of deposits in the Community. In order to maintain depositor confidence and attain greater stability on the financial markets, the minimum coverage level should therefore be increased to EUR 50000. By 31 December 2010, coverage for the aggregate deposits of each depositor should be set at EUR 100000, unless a Commission impact assessment, submitted to the European Parliament and the Council by 31 December 2009, concludes that such an increase and such harmonisation are inappropriate and are not financially viable for all Member States in order to ensure consumer protection and financial stability in the Community and to avoid distortions of competition between Member States. In the event that the impact assessment reveals that such an increase and such harmonisation are inappropriate, the Commission should submit appropriate proposals to the European Parliament and the Council.

"1. Member States shall ensure that the coverage for the aggregate deposits of each depositor shall be at least EUR 50000 in the event of deposits being unavailable.

1a. By 31 December 2010, Member States shall ensure that the coverage for the aggregate deposits of each depositor shall be set at EUR 100000 in the event of deposits being unavailable.

If, in its report referred to in Article 12, the Commission concludes that such an increase and such harmonisation are inappropriate and not financially viable for all Member States in order to ensure consumer protection and financial stability in the Community and avoid cross-border distortions between Member States, it shall present to the European Parliament and the Council a proposal to amend the first subparagraph.

1b. Member States outside the euro area that convert the amounts expressed in euro referred to in paragraphs 1 and 1a into their national currencies shall ensure that the amounts of national currencies effectively paid to depositors are equivalent to those set out in this Directive.";

Scofflaw wrote: »

Further, as has been pointed out, the banks do have assets - it's not simply the case that there's nothing to offset the liabilities, a point which is sometimes missed when people cite only the liability figures.

But what are the real value of these assets ?
That is the question I think everyone is wondering.

ei.sdraob

jmayo wrote: »

So far the only one who has come near to answering the actual question unlike some who skirted around the topic by gaving us very good explanation on Fractional-reserve banking, how the banks assets were overvalued and thus the banks are being kept afloat by ECB.
.

I am well aware of how fractional reserve banking works and yes banks did participate in bad lending which led to overvalued assets, all under the watchful gaze of the regulator who chose to ignore all alarm bells.
but
Scofflaw proceeded then to contradict himself by saying its "a liquidity problem" and the banks have assets and everything is hunky dory, if this is the case then why doesn't he go and buy some of the bank shares, they must seen to him like a steal now.


yes the banks have assets, assets that are worth **** all due to careless lending, that much we all know now that these "assets" are owned/backed by all of us.
you can point a finger at any bank even the best run ones and say they would have a "liquidity" problem if there was a bank run, no banks ever keep enough in reserve


the problem with irish banks is not "liquidity" but "stupidity" manifested in huge amounts of bad lending which led to "insolvency" and now shattering of "confidence" of its customers
a bank can not operate without confidence from customers, they are going to attempt to merge and re-brand the banks (Look at Anglo) but its too late now, its like rearranging seats on the Titanic


to answer @OPs question some confidence in the banks remains from the ordinary punter who are still buying all the crap fed to them by FF, until this confidence remains your money is safe, you could play it safe and move the deposits, all those corporate and foreign depositors are looking at the situation from outside the box and see the writing on the box hence why they withdrew dozens of billions.
if there is a bank run, most likely the ECB would step in and print up some money to prevent contagion, BUT thats a big "if" the ECB keep insisting that their job is controlling inflation and money supply (yeh :rolleyes: points at credit and housing bubble here and few other countries) they could very well just stand back and tell the ministers to sort it out.

ei.sdraob

now these banks are being ordered to sell their loans fast by the EU/IMF

Ireland to speed up shrinking of banks

By Patrick Jenkins and Sharlene Goff in London
Published: December 5 2010 22:50 | Last updated: December 5 2010 22:50
Ireland will accelerate the pace of shrinking the country’s banks, as a quid pro quo for continued access to emergency European funding.

The banks will have to sell tens of billions of euros worth of legacy loans in a matter of months, say people briefed on the details of Ireland’s €85bn ($114bn) bail-out by the European Union and the International Monetary Fund.

so all the good "assets" will be sold at firesale while all the **** "assets" will be left holding by the taxpayer

yeh well done there, mighty stuff altogether <insert mega sarcasm smiley>

Scofflaw

SkepticOne wrote: »

I think one of the big mistakes was that the powers that be simply looked at the balance sheets and said "yes, well that all appears to be in order", without ever questioning the quality of those assets. Hence we've had a succession of quick fixes designed to kick the can a bit further down the road. I think perhaps Scofflaw may be making the same mistake on this thread.

They did - the difference between that mistake and my points on this thread is a couple of years and NAMA. That's not to say that the problem of questionably valued assets has been cured - which is why I gave the example of a 25% writedown of AIB's assets - but that you can't simply say "oh well, there's questions over the value of AIB's assets, so we'll treat them as zero", as some people are wont to do.

If you take AIB's end-2009 balance sheet, it says on the face of it assets of €174.3bn. However, it also says "Financial assets held for sale to NAMA: €19.2bn".

We know the bank won't, and didn't, receive that nominal book value for NAMA loans - instead, AIB took 42.5% haircuts on the first tranche of €3.29bn, and was expected to take a 45.5% haircut on the rest ("45% overall" has been stated). It may well take over 50% on the €4.5bn of sub-€20m loans which are part of the IMF/EU Memorandum - call it 65%.

So, we can write down its assets on that basis to give some idea of how insolvent the bank is:

Claimed assets: €174.3
NAMA 1 Adjustment: €19.2bn @ 45% = €10.6bn (adjustment of -€8.6bn)
NAMA 2 Adjustment: €4.5bn @ 65% = €2.9bn (adjustment of -€1.6bn)

So we can pretty definitely deflate AIB's assets from the stated €174.3bn to €164.1bn. Since it had liabilities of €162.98bn, we could safely say that AIB should be insolvent on that basis.

We also know that AIB stated that excluding NAMA and reclassifications, loans to customers (also assets) fell by 6% up to end September. Assuming that figure can be applied to the €103.3bn in "Loans and receivables to customers" also listed in assets, that gives a figure of €97.1bn for those, and a further adjustment of €6.2bn, pushing AIB's assets down to €157.9bn - which means that AIB should be insolvent, on those figures, by about €5.1bn.

However, we also know that AIB has lost customer deposits totalling about €13bn since the start of the year - and customer deposits, which are covered by the government blanket guarantee (but not necessarily by the Deposit Guarantee Scheme of €100k), are liabilities, not assets - so liabilities have also fallen, from €83.95bn in customer deposits to about €70.95bn in customer deposits. That fall takes AIB's liabilities from €162.98 down to €149.98bn - which would make them solvent.

So, having taken NAMA into account, and if we're inclined to believe Honohan's statement that the EU/IMF teams found no new "bombshell holes" in the banks, I'm not sure that one can say quite so confidently that AIB is insolvent.

Having said that, though, I'd still say they probably are insolvent, if not quite technically so. That's the reason for leaving the nominal value of NAMA assets on the books until the losses are actually crystallised by transfer to NAMA, whereupon the government injects more cash, thus keeping the fiction running.

However, whether insolvent or not, it remains the case that AIB is not simply without assets. The question is indeed the value of those assets, but it's not quite the same question as before NAMA and EU/IMF scrutiny.

cordially,
Scofflaw

roosh

cheers for the responses guys, I really appreciate the time people have taken to explain things.

What I took from the replies is, not sure if this is right or wrong, that the deposits are safe for now, but if any of the banks go to the wall, which appears to be a distinct possibility, then it is a question of where the government will get the money to pay to pay the guarantee scheme. If that happens, the government may not be able to cover all depositors.

So is it really a question of how solvent the banks are?

ei.sdraob

mangaroosh wrote: »

So is it really a question of how solvent the banks are?

No its a question of how much confidence is left among the average Joe and Mary up and down the country, in the banks.
And now that the banks are part of the state trust in the government as well.

The Irish banks are insolvent as per the definition of the word:

Insolvency means the inability to pay one's debts as they fall due

The banks have to keep going back to the taxpayer as their "debts" become due as they are unable to repay and/or roll them over.

K-9

ei.sdraob wrote: »

No its a question of how much confidence is left among the average Joe and Mary up and down the country, in the banks.
And now that the banks are part of the state trust in the government as well.

The Irish banks are insolvent as per the definition of the word:

The banks have to keep going back to the taxpayer as their "debts" become due as they are unable to repay and/or roll them over.

+ the European Central and Irish Central Bank.

SkepticOne

K-9 wrote: »

+ the European Central and Irish Central Bank.

+ more recently, the EU and the IMF, 53 percent of which is going into the banks. But remember that even though this money is at low interest rates, it is the tax payer that is responsible for paying that money back.

K-9

SkepticOne wrote: »

+ more recently, the EU and the IMF, 53 percent of which is going into the banks. But remember that even though this money is at low interest rates, it is the tax payer that is responsible for paying that money back.

Indeed. If Spain doesn't pre-empt it, the ECB withdrawing that lifeline will. They just can't withdraw it within the next couple of years at least because it will cause a default.

roosh

ei.sdraob wrote: »

No its a question of how much confidence is left among the average Joe and Mary up and down the country, in the banks.
And now that the banks are part of the state trust in the government as well.

The Irish banks are insolvent as per the definition of the word:

The banks have to keep going back to the taxpayer as their "debts" become due as they are unable to repay and/or roll them over.

If we presume that confidence is sufficient that there is no run on the banks, what would be the scenario do you think?

SkepticOne

K-9 wrote: »

Indeed. If Spain doesn't pre-empt it, the ECB withdrawing that lifeline will. They just can't withdraw it within the next couple of years at least because it will cause a default.

I would agree with this. Deposits are out of immediate danger. Keep an eye on Spain and Portugal though. The current bailout package is designed to stop contagion spreading to them. Some say it has already and if so, some of the point of bailing out Ireland has gone.

jmayo

Can some one please answer the questions I raised about the EU directive on guarantees ?

jmayo wrote: »

...
Is that directive not directing states to adopt a guarantee EU 100,000 per depositor by December 2010, rather than putting a EU wide deposit guarantee fund in place ?
Thus Irish depositors in Irish banks would be guaranteed by Irish state rather than some European fund ?
There are a few question marks over that deposit guarantee directive that should be highlighted.

Notice reference to aggregate deposits and not deposits per depositor per institution.


http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32009L0014:EN:NOT

Sections from Directive 2009/14/EC of the European Parliament and of the Council
of 11 March 2009

amending Directive 94/19/EC on deposit-guarantee schemes as regards the coverage level and the payout delay

(3) The current minimum coverage level provided for in Directive 94/19/EC is set at EUR 20000 with the option for Member States to determine higher coverage. However, this has proved not to be adequate for a large number of deposits in the Community. In order to maintain depositor confidence and attain greater stability on the financial markets, the minimum coverage level should therefore be increased to EUR 50000. By 31 December 2010, coverage for the aggregate deposits of each depositor should be set at EUR 100000, unless a Commission impact assessment, submitted to the European Parliament and the Council by 31 December 2009, concludes that such an increase and such harmonisation are inappropriate and are not financially viable for all Member States in order to ensure consumer protection and financial stability in the Community and to avoid distortions of competition between Member States. In the event that the impact assessment reveals that such an increase and such harmonisation are inappropriate, the Commission should submit appropriate proposals to the European Parliament and the Council.

"1. Member States shall ensure that the coverage for the aggregate deposits of each depositor shall be at least EUR 50000 in the event of deposits being unavailable.

1a. By 31 December 2010, Member States shall ensure that the coverage for the aggregate deposits of each depositor shall be set at EUR 100000 in the event of deposits being unavailable.

If, in its report referred to in Article 12, the Commission concludes that such an increase and such harmonisation are inappropriate and not financially viable for all Member States in order to ensure consumer protection and financial stability in the Community and avoid cross-border distortions between Member States, it shall present to the European Parliament and the Council a proposal to amend the first subparagraph.

1b. Member States outside the euro area that convert the amounts expressed in euro referred to in paragraphs 1 and 1a into their national currencies shall ensure that the amounts of national currencies effectively paid to depositors are equivalent to those set out in this Directive.";

I have noticed quiet a few times around here that posters, including some who are often lauded as experts with opinions rated above those of the rest of us, can make statements, but when questions are asked about those statements no answers or replies are provided.

People claim deposits are safe and not alone do we have an Irish deposit scheme in place, but that there is an EU wide one in place thanks to a directive that was updated in 2009.
Yet when I look at the directive it does not appear to provide what some hint at, which is that there is an EU fund to support deposits.

So if that is indeed true then all we are left with is our own government's deposit guarantee and bank guarantee.

Can someone clarify this or else stop pedalling information that could be misleading depositors ?

Scofflaw

At the risk of repeating myself (and presuming I'm the intended recipient of the snide remarks) - the EU Directive you refer to was introduced in 1994, and mandated bank schemes which cover €25k per depositor per institution throughout the EU. The Irish version of that scheme - the Irish Deposit Guarantee Scheme - has been running since then. The fund is held at the Irish Central Bank, and paid into by the financial institutions. At that level, the scheme covers approximately 61% of the amount of deposits, and 89% of the number of deposits - that is, 89% of deposits are smaller than 25k, and could therefore expect a full payout with confidence. It is fully funded at that level, according to the Irish Central Bank.

The scheme is not fully funded to the €100k level, and is not expected to be until 2020. At the €100k level, the scheme covers approximately 72% of the amount of deposits, and 95% of the number of deposits. The gap between the €25k and the new €100k limit - for those who have that worry - would have to be covered by the government to the extent that the banks can't, in the case that the banks do not have assets sufficient to cover the gap themselves (which the available evidence suggests they do).

The Irish Deposit Guarantee Scheme has nothing to do with the "government guarantee" - aka the Credit Institutions (Eligible Liabilities Guarantee) Scheme 2009 - which covers all debt in the six state-owned institutions. It is legally separate and separately funded.

As I've said before, the valuations of the banks' assets are questionable, but that does not mean that the banks simply have no assets. The likely gap between assets and liabilities seems in the case of, say, AIB, to be likely to be around €5bn-€10bn, and some of that gap, in the absence of the Eligible Liabilities Guarantee, would be soaked up by burning those further down the ladder than depositors. That the Irish state-owned banks - or some of them at least - may be insolvent is one thing, but the question is whether they are insolvent to the extent that depositors (and senior debt) would not be covered, and that is a good deal less likely, given that AIB's half-year stated assets would need to be written down by more than €60bn to achieve it - a haircut of more than NAMA levels on all of its assets.

cordially,
Scofflaw

Cavehill Red

http://www.bankrun2010.com/

If this takes off, it could very well affect the security of deposits held in Irish banks. As previously stated, they have a major solvency problem in that most of them aren't solvent.
A liquidity crunch would be enough to put them under, and the same goes for many banks around Europe.
For this reason, I have my few funds hedged outside the state for the most part and outside the euro too at the moment.

iknorr

Any chance you could mention where exactly or a recommendation? Im thinking of doing the same...


Another thing slightly related to this would be interest rates on those deposits. At the moment the best im getting is 3.25% for 10k in aib and something like 1.25% for everything above that.

nesf

P. Breathnach wrote: »

I take a similar view. We don't hear enough use of the phrase "vanilla bank", but I really would like to see banks adopt the policies and practices that worked well for generations. The huge shocks that have shaken financial systems worldwide, and particularly our one, are in part caused by the use of complex instruments which were used to shift risk around while maintaining a pretense that all risk had been magicked out of the system.

But that wasn't the problem with the Irish banks!!

Honestly the Irish banks were operating as "vanilla banks" except they were substituting short term loans from the money market for depositors in order to gather more money to lend out. This in itself isn't a huge problem so long as the banks don't spook the market. This is exactly the same as the banks not spooking the depositors problem.

The modern day bank run isn't people queuing outside of banks (though that did happen with Northern Rock) it's short term financing disappearing when investors get spooked.

The regulatory challenge is to figure out a way of combating this, similar to how deposit guarantees by States was the solution found to combating traditional bank runs.

nesf

Cavehill Red wrote: »

http://www.bankrun2010.com/

That is possibly the most irresponsible thing I've seen for a long time. I can't believe someone is actually stupid enough, never mind a group is stupid enough, to actually try and encourage a bank run. I dearly hope it's a troll and that the bad karma it generates causes the creators of it to suffer nasty, brutish and short lives. I mean, a European wide bank run could ruin the lives of millions of people and severely impact the lives of many more.

Cavehill Red

nesf wrote: »

That is possibly the most irresponsible thing I've seen for a long time. I can't believe someone is actually stupid enough, never mind a group is stupid enough, to actually try and encourage a bank run. I dearly hope it's a troll and that the bad karma it generates causes the creators of it to suffer nasty, brutish and short lives. I mean, a European wide bank run could ruin the lives of millions of people and severely impact the lives of many more.

They've had coverage in a lot of French press and in the Guardian. It stems from Eric Cantona's statements about taking out the bankers who caused the current economic turmoil.
They're not trolling, perhaps a little idealistic and anarchist in their opinions and tactics though.
If you're in the karma market though, no doubt you'd be wishing many incarnations of hell for the likes of Fitzpatrick et al who brought us to this pass in the first place? After all, millions of lives are already ruined by the current banking system. A visit to the courts, watching the banks suing mortgagees would indicate that to you.
I reckon all power to them. We need a new system at this point. Clearly no amount of regulation is sufficient. But I don't intend to be caught in the crossfire, which is why my money, what little I have, is in commodities, property and outside the eurozone.

ei.sdraob

Scofflaw wrote: »

The fund is held at the Irish Central Bank, and paid into by the financial institutions

Is that:
* the same central bank/regulator that sat back and let the banks go mad without a slap on the writes.
* the same central bank that was releasing papers as early as 2006 which highlighted the unsustainable nature of mortgage lending here, and did not act on own published research
* the same central bank that handed over 20 billion very recently to the Irish banks and before gave Anglo ~11 billion.

At the risk of sounding like a broken record all the promises in the world are empty if there is no trust and confidence in the party who is meant to provide regulation to the system.
A bank run is caused by a breakdown in confidence, and the powers on top are doing everything they can to demolish it up to and including the euro itself.

please point us to a document/statement on the centralbank site which shows they are holding onto better part of 100 billion as a guarantee of deposits, because i cant find it, show me the money.

mangaroosh wrote: »

If we presume that confidence is sufficient that there is no run on the banks, what would be the scenario do you think?

There already has been a slow bank run of sorts (20-30 billion apparently) by corporate and foreign depositors
If anything prevents a bank run in Ireland its the stupidity of the average punter, there is still a sizeable portion of people who will vote for FF and more importantly listen and believe everything they say, and we heard quite alot of porkies from this crowd.

I myself disengaged out of Irish banks over the course of the year, not because of a fear of bank run but because I dont like to do business with reckless companies who are hurting everyone in the economy, thank god there is still some competition in banking who provide better and cheaper services. As a consumer I have every right to vote with my wallet and I did.

Its interesting that 2 years, one NAMA and one Anglo, and several budgets later, there is even less confidence in the system and increased risk of the very thing they where so scared of. More worrying the centralbank documents showing a steady stream of deposits leaving the country especially from foreign holders, these people are looking at us from outside in and are not clouded by parish pump politics and RTE spin.

P. Breathnach

nesf wrote: »

But that wasn't the problem with the Irish banks!!

Agreed that it wasn't the core problem, as I think I recognised in the rest of my post.

Honestly the Irish banks were operating as "vanilla banks" except they were substituting short term loans from the money market for depositors in order to gather more money to lend out. This in itself isn't a huge problem so long as the banks don't spook the market. This is exactly the same as the banks not spooking the depositors problem.

The modern day bank run isn't people queuing outside of banks (though that did happen with Northern Rock) it's short term financing disappearing when investors get spooked.

The shift in the banks' funding arrangements was a problem because: (a) the amounts of money available were vast in relation to the reasonable needs of the Irish economy; (b) the price of the money was set at German rates rather than at rates more attuned to our economy; (c) "the markets" may be more easily spooked than traditional depositors.

Essentially, we had an oversupply of money. That should result in inflation. Free trade and movement of people kept something of a lid on most market areas (shopping in Newry is an illustration). That helped funnel the inflationary pressure into market areas that are less open to competition as a regulatory mechanism: property.

So yes, we had more-or-less vanilla banks, but with a very big splash of raspberry ripple.

The regulatory challenge is to figure out a way of combating this, similar to how deposit guarantees by States was the solution found to combating traditional bank runs.

I have been musing about some variant on the idea of the "green pound".

jmayo

Scofflaw wrote: »

At the risk of repeating myself (and presuming I'm the intended recipient of the snide remarks) - the EU Directive you refer to was introduced in 1994, and mandated bank schemes which cover €25k per depositor per institution throughout the EU. The Irish version of that scheme - the Irish Deposit Guarantee Scheme - has been running since then. The fund is held at the Irish Central Bank, and paid into by the financial institutions. At that level, the scheme covers approximately 61% of the amount of deposits, and 89% of the number of deposits - that is, 89% of deposits are smaller than 25k, and could therefore expect a full payout with confidence. It is fully funded at that level, according to the Irish Central Bank.

The scheme is not fully funded to the €100k level, and is not expected to be until 2020. At the €100k level, the scheme covers approximately 72% of the amount of deposits, and 95% of the number of deposits. The gap between the €25k and the new €100k limit - for those who have that worry - would have to be covered by the government to the extent that the banks can't, in the case that the banks do not have assets sufficient to cover the gap themselves (which the available evidence suggests they do).

So basically you are agreeing that all the EU directive does is mandate individual governments through state agencies like our Central Bank to provide funds to enable deposits to be guaranteed ?
Also the lastest directive mentions aggregate deposits and does not appear to mention deposits per institution ?

In other words there is no EU wide deposit guarantee fund.
The reason I am driving this home is because when people mention this EU directive, they gloss over this little nugget and thus it looks to normal people as if there is an EU deposit guarantee scheme/fund.

Basically we have to rely on our own Central Bank to pay out depositors any shortfall that is left after the bank assets have been sold and any other higher ranking creditors are paid i.e. bondholders.

As ei.sdraob also mentioned that does not exactly fill me with confidence for some unknown reason. :rolleyes:

Oh and you may think my comments above were snide, but I think if someone comes out with somewhat misleading truncated statements about such very important matters to a huge swath of people without clarifying them fully and then don't answer questions on those statements, I find it disengenous.
You often as a moderator chastise other posters for not backing up their statements or making misleading comments.

Scofflaw wrote: »

The Irish Deposit Guarantee Scheme has nothing to do with the "government guarantee" - aka the Credit Institutions (Eligible Liabilities Guarantee) Scheme 2009 - which covers all debt in the six state-owned institutions. It is legally separate and separately funded.

Yes I know that, but if a bank goes belly up, then these would be the mechanisms which are supposed to offer the normal despositors some redress.
These are the safeguards the general public are being told about in order to keep them as depositors.
BTW how is the "government guarantee" of the 6 Irish onwed institutions covered ?
Also IL&P will be upset saying that they are state owned.

Scofflaw wrote: »

As I've said before, the valuations of the banks' assets are questionable, but that does not mean that the banks simply have no assets. The likely gap between assets and liabilities seems in the case of, say, AIB, to be likely to be around €5bn-€10bn, and some of that gap, in the absence of the Eligible Liabilities Guarantee, would be soaked up by burning those further down the ladder than depositors.

You and we all hope ?

shannonpowerlab

sellerbarry wrote: »

Excuse me, if this is a stupid question but, just Say:

I have 90k in Aib.
Government owns Aib
Aib go bang because govt can't borrow anymore from IMF etc to prop them up.

Question is: Where will the govt get 90k to pay me back if they can't get money to prop up bank in first place?
Thanks;)

Tax payers?

Andrew42

Is your cash safer in an Ulster Bank account rather than a BOI or AIB one?
Is Ulster Bank Ireland Ltd covered by the UK's bank guarantee or is it classed as an Irish (Republic of) bank?

ei.sdraob

see here, parent is RBS who are too big to fail and where already bailed out

as for safer who knows they where after all the crowd who introduced 100% mortgages and also lent carelessly

tho they certainly do provide better services than our gombeens, that was enough reason for me to move

Andrew42

ei.sdraob wrote: »

see here, parent is RBS who are too big to fail

Dangerous words, Lehmanns(?) anyone?

ei.sdraob

Andrew42 wrote: »

Dangerous words, Lehmanns(?) anyone?

Well RBS was already bailed out an seem to be doing fairly well despite the irish mortgage book dragging them

jmayo

ei.sdraob wrote: »

Well RBS was already bailed out an seem to be doing fairly well despite the irish mortgage book dragging them

And don't forget they still have massive outstanding loans on some Ballsbridge property that was very very overpriced. :rolleyes: