So our savings are next for the chop!

Scofflaw

Grandpa Hassan wrote: »

We have seen that the desposit guarantee scheme is not worth the paper that it is written on, and if push comes to shove it can be torn up. I do not think any government be able to pass a bill taxing all savers, even small ones, but that said I think assuming anything below €100k is safe is completely naive - smaller savers might be hit with a lower tax that is imposed for amounts more than €100k, but I do not think smaller savings are untouchable. Those that claim otherwise are probably those that said, after our pensions were raided, that it could never happen to savings.

I will personally be ensuring that my balance with any one bank does not go above €50k.

A lot of people seem to be confused about the "deposit guarantee scheme". It's not a blanket guarantee that €100k of your money (per bank) is safe under every conceivable circumstance. It's a specific scheme that means that if your bank goes bust and is unable to repay you out of its assets, the government will make up the difference.

Short of a constitutional amendment, there is no possible way of your deposit being protected from government levies or taxes.

Finally, people are often under the impression that when you put money into a bank, the bank has your money and therefore owes it back to you. Legally, this is not the case. Instead, you have paid the bank a sum of money to offer you a credit facility of the same size as that sum.

cordially,
Scofflaw

PRAF

Scofflaw wrote: »

A lot of people seem to be confused about the "deposit guarantee scheme". It's not a blanket guarantee that €100k of your money (per bank) is safe under every conceivable circumstance. It's a specific scheme that means that if your bank goes bust and is unable to repay you out of its assets, the government will make up the difference.

Short of a constitutional amendment, there is no possible way of your deposit being protected from government levies or taxes.

Finally, people are often under the impression that when you put money into a bank, the bank has your money and therefore owes it back to you. Legally, this is not the case. Instead, you have paid the bank a sum of money to offer you a credit facility of the same size as that sum.

cordially,
Scofflaw

The entire financial system is based on trust. Concepts such as deposits covered under guarantee being safe are important regardless of the legalities of the situation. The troubling thing about the Cyprus debacle was that ordinary depositors under guarantee were potentially going to be hit. That would potentially have been disasterous for the entire eurozone financial system. I'm glad that move was reversed and that some form of common sense prevailed. Per my earlier post, I have some (but not a lot of) sympathy for those who will lose some of their >100k deposits

amacca

Scofflaw wrote: »

Finally, people are often under the impression that when you put money into a bank, the bank has your money and therefore owes it back to you. Legally, this is not the case. Instead, you have paid the bank a sum of money to offer you a credit facility of the same size as that sum.

I find the above quite chilling and admit to ignorance when it comes to that point

so legally when you withdraw your deposit the bank is merely lending your own money back to you?

once you give it to them, they actually own it....so thats how they go about re-investing it and offering credit to other customers on the strength of it

We spend 14 or so years learning Irish without a choice when it seems resources would be better diverted to teaching people the basics of how to manage money, fractional reserve banking, simple reverse rental yield calculations, how banks do mortgage lending (basic things like historical lending averages such as 3.5 times your income for 10-20 years) i.e how to spot a bubble.

This could easily go under civics instead of the business studies subjects in secondary and separate from maths in primary.

PRAF

amacca wrote: »

I find the above quite chilling and admit to ignorance when it comes to that point

so legally when you withdraw your deposit the bank is merely lending your own money back to you?

once you give it to them, they actually own it....so thats how they go about re-investing it and offering credit to other customers on the strength of it

No need for any panic here. I'm sure Scofflaw didn't intend to cause a potential run on the banks!!!

If you deposit €100 in the Bank, the following happens:

Your perspective: you hand over the €100. You get access to whatever banking services come with your account, you get interest on it, the bank keeps your money safe (subject to certain guarantees, e.g. <100k guaranteed by the state), etc. The bank is then contractually obliged to repay you according to the terms of the account agreement

The banks perspective: they now have an asset of €100 which they are free to lend to others and earn interest on. However, they also have a liability (to you) of €100.

Scofflaw

PRAF wrote: »

No need for any panic here. I'm sure Scofflaw didn't intend to cause a potential run on the banks!!!

If you deposit €100 in the Bank, the following happens:

Your perspective: you hand over the €100. You get access to whatever banking services come with your account, you get interest on it, the bank keeps your money safe (subject to certain guarantees, e.g. <100k guaranteed by the state), etc. The bank is then contractually obliged to repay you according to the terms of the account agreement

The banks perspective: they now have an asset of €100 which they are free to lend to others and earn interest on. However, they also have a liability (to you) of €100.

Sorry - didn't intend to frighten anyone! But, again, the above is perhaps too soothing - if you make a €100 cash deposit at the bank, you are literally giving up your legal title to the cash, which becomes a legal asset of the bank. You are lending the bank €100, and they are contracting to repay you.

Just like a bondholder, a depositor is a lender to the bank in return for interest, and should really be doing due diligence that reflects the extent of their lending to the bank. That small depositors (as opposed to the very wealthy and organisations) will not necessarily have the resources to do this effectively is what is recognised in the various deposit protection schemes and the rafts of legislation that surround banks.

cordially,
Scofflaw

KyussBishop

Scofflaw wrote: »

If the mass of people using a bank have no fundamental reason for being interested in how the bank is run because they expect the government to pick up the tab if the bank falls over, then you're removing a huge source of pressure for banks to be better run and more transparent. But if people are concerned that their bank might fail, a bank that can offer transparency to show it's well-run has a large competitive advantage.

This isn't true though, because a bank can be more profitable and thus more competitive in the short-term, by utilizing highly risky practices and concealing that information; that's a simple Greshams Dynamic, 'bad' business practice drives out good business practice.

If banks are to disclose this information, it needs to be regulated and made mandatory, because otherwise they can simply conceal information with no consequence, or they can provide misleading/false information (which, absent regulations, may not be illegal; hell, even illegality didn't stop other banks providing false information with things such as LIBOR).

It's not practically possible for the people to regulate the banks, that needs to be done by government (and certainly the people haven't, underscoring the need for government to).

Scofflaw wrote: »

On balance, I don't think it's a good idea either that people in general assume that the government will bail their bank out, or that governments assume the rest of the eurozone will bail their banks out if they can't. There's obvious moral hazard in both.

The moral hazard though, is having a system where the banks are so unregulated that they can become such a dangerous systemic risk in the first place; it's up to government to make sure the banks don't need a bailout, and up to banks to follow the law/regulations, not up to the depositors to police the bank.

Moral hazard is always a very selectively applied principle, and in a lot of discussion about the economic crisis, I notice it is usually applied in various forms, to imply the blame falls on the citizenry, for the profligacy/fraud of those in banking/finance, and the regulatory/oversight failures of government.

The EU as a whole is responsible for putting in place such a dangerous and incomplete system, which allows a crisis like this to happen without a proper way to manage it, and the EU as a whole needs to be responsible for rectifying that as well; this bigger-picture view often gets lost or ignored entirely, in discussing the crisis.

This doesn't mean bail-outs are the correct path, it just means using moral hazard as an argument against them, is blind to the much bigger failures (with broadly shared responsibility across the EU), and the bigger picture in general, that lead to the need for these bailouts in the first place.

maninasia

blindjustice wrote: »

We spend 14 or so years learning Irish without a choice when it seems resources would be better diverted to teaching people the basics of how to manage money, fractional reserve banking, simple reverse rental yield calculations, how banks do mortgage lending (basic things like historical lending averages such as 3.5 times your income for 10-20 years) i.e how to spot a bubble.

This could easily go under civics instead of the business studies subjects in secondary and separate from maths in primary.

Countries like Singapore has financial awareness courses on their books. The problem goes deeper than what you say here.

Teaching of religion and the lack of politics and society type courses, all designed to produce a certain type of citizen.

When the bank guarantee happened there was very little furore because the population , the media and much of elite simply didn't understand what was going on. They never even questioned how Ireland could back up such a comprehensive guarantee.

A lot of people got a very expensive lesson in finance including government ministers.

KyussBishop

Scofflaw wrote: »

A lot of people seem to be confused about the "deposit guarantee scheme". It's not a blanket guarantee that €100k of your money (per bank) is safe under every conceivable circumstance. It's a specific scheme that means that if your bank goes bust and is unable to repay you out of its assets, the government will make up the difference.

Short of a constitutional amendment, there is no possible way of your deposit being protected from government levies or taxes.

Finally, people are often under the impression that when you put money into a bank, the bank has your money and therefore owes it back to you. Legally, this is not the case. Instead, you have paid the bank a sum of money to offer you a credit facility of the same size as that sum.

cordially,
Scofflaw

As I said on another thread, part of the point of the guarantee scheme was to give confidence in deposits to prevent capital flight and bank runs, and it is this spirit of the guarantee which has obviously been undermined, by just calling the extraction of money a 'tax' instead.
This has made the guarantee completely worthless, because you just need to put in place a tax, the moment before you liquidate the bank.

I don't see the logic in ignoring the spirit of laws like that, because you can probably find a by-the-letter loophole to undermine or get around critical aspects of almost any law; it's kind of a post-hoc justification for undermining the principle of a law, and saying it's ok.

PRAF

Scofflaw wrote: »

Sorry - didn't intend to frighten anyone! But, again, the above is perhaps too soothing - if you make a €100 cash deposit at the bank, you are literally giving up your legal title to the cash, which becomes a legal asset of the bank. You are lending the bank €100, and they are contracting to repay you.

Yes you are giving up legal title to the cash. But equally you are getting legal protection in terms of a legally binding contract which gives you access on demand to the money you have put on deposit.

Has there ever been an example in Europe where ordinary depositors were 'burned'? I can't think of any. I think the guarantee for deposits <€100k should be sacrosanct. The fact that the Troika allowed that trust to be shaken in the Cyprus crisis is a little worrying. However, I wont be rushing down to my bank to demand my money back. There is no such thing as a risk free world. You could take out all your money, shove it under your mattress, and have your house robbed or burned down.

Maybe we should all be a bit more like Charlie McCreevey, 'if I have it, I spend it' ;)

number66

Bitcoins are starting to look worthwhile. Seems our banks are not safe so maybe it's time for somthing new.

Icepick

PRAF wrote: »

Yes you are giving up legal title to the cash. But equally you are getting legal protection in terms of a legally binding contract which gives you access on demand to the money you have put on deposit.

Has there ever been an example in Europe where ordinary depositors were 'burned'?

Most recently - Iceland.

nowanathiest

The EU head honch's know exactly what they are doing and so do the American ones, the UK one's etc etc...........and it's not rocket science. Almost all major western economies are bankrupt, including the UK........they have only been kept afloat to date by quantative easing (printing money again and again and again), banks are not capitalised, they are currently a ponzi scheme and when the next cold wind blows through the financial world, the domino's will start to fall and governments everywhere will do whatever is necessary to keep cash in situ.

Emergency Plans were drawn up in UK 2 years ago to address the Euro collapse, when it eventually happens. They will immediately impose bank controls on electronic transfers. Limit cash machine withdrawals, seal the borders so they will not be over run by economic refugees from euro countries, and yes that includes Ireland. This is not fiction, it was openly discussed by the conservative government.

Mr.Micro

The irony of all this and taking depositors money, is that it only further erodes peoples trust and confidence in the banks. What is a bank without its sold base of depositors, either private individuals or businesses? ...... nothing. So now we have a situation where depositors may/will be penalized in the future. It has not happened here yet, but its a good possibility for the future IMO. People will now be wary about putting any bug sums in the banks.

Talk about the financial experts in the EU/IMF shooting the very recovery of the banks in the foot, let alone killing off the very base of all the banks core ie. the depositors. Its an absolute mess. What will be the point of saving in a bank to have it taken from you? None.

hmmm

Mr.Micro wrote: »

What will be the point of saving in a bank to have it taken from you? None.

It's not about "saving" a bank, it's about paying for it when it has to close.

I don't have many objections to the proposal that depositors should have to pay. I think the limits should be higher, and I wish the policy would be decided and made clear, but in general it is a fine proposal that shifts the risk from taxpayers to big depositors.

The US has a very similar scheme. If a bank fails, the bondholders are wiped out, and after that the depositors.

Before the last month, badly run banks could raise deposits at the same cost as well run banks (maybe even cheaper), because depositors believed there was an implicit government guarantee. That has now changed - interesting times ahead.

If you have a big lump of cash and you want to protect it, you can no longer piggyback on the taxpayer. You'll either have to be careful what you do with it, or pay for advice.

Icepick

Mr.Micro wrote: »

People will now be wary about putting any bug sums in the banks.

good

amacca

Icepick wrote: »

good

not good imo

(at least in the short term - depending on just how wary these depositors get)

Mr.Micro

hmmm wrote: »

It's not about "saving" a bank, it's about paying for it when it has to close.

I don't have many objections to the proposal that depositors should have to pay. I think the limits should be higher, and I wish the policy would be decided and made clear, but in general it is a fine proposal that shifts the risk from taxpayers to big depositors.

The US has a very similar scheme. If a bank fails, the bondholders are wiped out, and after that the depositors.

Before the last month, badly run banks could raise deposits at the same cost as well run banks (maybe even cheaper), because depositors believed there was an implicit government guarantee. That has now changed - interesting times ahead.

If you have a big lump of cash and you want to protect it, you can no longer piggyback on the taxpayer. You'll either have to be careful what you do with it, or pay for advice.

How can banks exist without depositors? Its the whole principle of banking? I see myself as quite pragmatic and I would not now be depositor in a bank if I had a big sum. Interest is so low that it would earn more under the mattress. Where the banks will find the money in future will not be easy then. The same mess will happen all over again in the future.

Scofflaw

Mr.Micro wrote: »

How can banks exist without depositors? Its the whole principle of banking? I see myself as quite pragmatic and I would not now be depositor in a bank if I had a big sum. Interest is so low that it would earn more under the mattress. Where the banks will find the money in future will not be easy then. The same mess will happen all over again in the future.

It's hard to see how it would lead to "the same mess" as this one, since a major cause of this one is the growth in bank balance sheets, where several of those countries that have required bailouts have required them because they encouraged their banks to grow to unsustainable multiples of their GDP, making them both too big to fail and too big to save. Slowing that growth would seem, if anything, to delay a repeat of the mess.

Similarly, the concerns people would have about putting their deposits in a bank that might fail might well also be a good thing, since it would give a market advantage to well run banks that were also very transparent - and transparent, well-run banks are surely a good thing? Didn't much of our mess result from badly run and opaque banks? Perhaps the mass of people will now take an interest in the activities of the financial regulator - or at least consumer organisations will do so on their behalf.

Obviously this move generates concerns for citizens - but are concerned citizens not the start of every reform? The complacency of the Tiger years has been expensively shown to be a false complacency - why is there such a rush to return to it?

cordially,
Scofflaw

KyussBishop

The problem is, there is far too much money to be made by keeping the banks opaque, and then having them pump up bubbles (such as property bubbles) with excess credit again, once the crisis has subsided (probably a decade or more away for the full effects of it to subside); enormous amounts of money have been made in doing this, so I don't think consumers are going to have much capability of pushing reform there (we certainly haven't seen any thus far, and I have absolutely zero faith a proper widescale investigation and prosecutions will be undertaken).

There is every indication that the same mess will happen again in the future really, because there is zero reform, and even now there's still an effort to keep property prices propped up; when the prices bottom out, investors will flood the market with cash in hand to snap up property, and they are going to want to see the property-bubble-mill rolling again to get a return on their investments, and they have more access to political power (i.e. money) than the wider population.

If we start seeing investigations and people actually going to jail, I'd have more hope of seeing reform, but right now there is none.

Also worth mentioning, that our countries position as a lax-regulation financial hub, goes hand-in-hand with lax regulation in our national banks as well; that is a huge financial lobby group that will be dead-set against any kind of regulatory reform, who again have far more political clout than the people.

PRAF

KyussBishop wrote: »

The problem is, there is far too much money to be made by keeping the banks opaque, and then having them pump up bubbles (such as property bubbles) with excess credit again, once the crisis has subsided (probably a decade or more away for the full effects of it to subside); enormous amounts of money have been made in doing this, so I don't think consumers are going to have much capability of pushing reform there (we certainly haven't seen any thus far, and I have absolutely zero faith a proper widescale investigation and prosecutions will be undertaken).

There is every indication that the same mess will happen again in the future really, because there is zero reform, and even now there's still an effort to keep property prices propped up; when the prices bottom out, investors will flood the market with cash in hand to snap up property, and they are going to want to see the property-bubble-mill rolling again to get a return on their investments, and they have more access to political power (i.e. money) than the wider population.

If we start seeing investigations and people actually going to jail, I'd have more hope of seeing reform, but right now there is none.

Also worth mentioning, that our countries position as a lax-regulation financial hub, goes hand-in-hand with lax regulation in our national banks as well; that is a huge financial lobby group that will be dead-set against any kind of regulatory reform, who again have far more political clout than the people.

Good point. I also wonder how well we would actually be protected from a future property price bubble.

I think (and assume) that we do have some additional banking rules and regulations in place to prevent a reoccurence. I do think that the personal insolvency laws will prevent some of the excessive lending practices of the past. I also know that we now have a more invasive regulatory inspection regime. The govt has also reduced a lot of the property incentives and is now beginning to tax property.

All of the above should help to mitigate another hugely damaging property price bubble. However, I don't think they have gone far enough yet. One of the first things I would like to see addressed is having much greater penalties in place for poor governance / sterwardship of financial institutions (inlcuding the threat of jail).

nowanathiest

the blanket government guarantee on ALL deposits in Irish Banks was lifted today. Only deposits under €100,000 are now guaranteed in Irish Banks. Co-incidence in the same week as the Cyprus events? I doubt it.

If the Trokia were now to introduce a "tax" on deposits over €100,000 in Ireland, Spain, Greece, Portugal & Italy simultaneously at 30 or 40% it would solve a lot of their problems in one fell swoop. It's not stealing of course, because the depositors would be given shares in the banks in exchange for the case.

amacca

nowanathiest wrote: »

It's not stealing of course, because the depositors would be given shares in the banks in exchange for the case.

No, god no its not stealing...you would simply wake up with 30 or 40% less liquid assets in exchange for magic beans.

I for one would be delighted about that........now I just wonder where would I put my beanstalk?

nowanathiest

amacca wrote: »

No, god no its not stealing...you would simply wake up with 30 or 40% less liquid assets in exchange for magic beans.

I for one would be delighted about that........now I just wonder where would I put my beanstalk?

Brilliant, thank you. Haven't laughed so hard in ages!!! and ohhhhh so true...........do you think this was Johnny Ronan's last thought before he fell asleep last night??

Scofflaw

nowanathiest wrote: »

the blanket government guarantee on ALL deposits in Irish Banks was lifted today. Only deposits under €100,000 are now guaranteed in Irish Banks. Co-incidence in the same week as the Cyprus events? I doubt it.

Poor timing, possibly, but that guarantee would not have covered you against a deposit levy in the first place.

nowanathiest wrote: »

If the Trokia were now to introduce a "tax" on deposits over €100,000 in Ireland, Spain, Greece, Portugal & Italy simultaneously at 30 or 40% it would solve a lot of their problems in one fell swoop. It's not stealing of course, because the depositors would be given shares in the banks in exchange for the case.

I'm not sure how that would deal with "the troika's problems", given they're not the ones worrying about money so much. Nor could they institute any such tax off their own bat - the countries concerned would have to do so. And while a deposit levy might sort out a bit of Ireland's debt, there's no sign that the Irish government would want to go down that road at all.

cordially,
Scofflaw

Mr.Micro

nowanathiest wrote: »

the blanket government guarantee on ALL deposits in Irish Banks was lifted today. Only deposits under €100,000 are now guaranteed in Irish Banks. Co-incidence in the same week as the Cyprus events? I doubt it.

If the Trokia were now to introduce a "tax" on deposits over €100,000 in Ireland, Spain, Greece, Portugal & Italy simultaneously at 30 or 40% it would solve a lot of their problems in one fell swoop. It's not stealing of course, because the depositors would be given shares in the banks in exchange for the case.

If the depositors wanted their money instead of these shares, then is it still not stealing? Any bank is risky now, there is no safe bank at all IMO. In future then its the customers who will pay for the bank if it fails, and will hope the so called financial regulators will do their jobs to keep the banks in line. Deposits will suffer now, that they may be open targets. It will be interesting as to what wheezes the banks invent to make up for the lack of this cash base? I hope the regulators are up to speed, lol.

Scofflaw

Mr.Micro wrote: »

If the depositors wanted their money instead of these shares, then is it still not stealing? Any bank is risky now, there is no safe bank at all IMO. In future then its the customers who will pay for the bank if it fails, and will hope the so called financial regulators will do their jobs to keep the banks in line. Deposits will suffer now, that they may be open targets. It will be interesting as to what wheezes the banks invent to make up for the lack of this cash base? I hope the regulators are up to speed, lol.

Again, I can't really see that as such a bad thing. Is there some reason we need the banks to be absolutely stuffed with cash and throwing out loans like confetti?

cordially,
Scofflaw

Mr.Micro

Scofflaw wrote: »

Again, I can't really see that as such a bad thing. Is there some reason we need the banks to be absolutely stuffed with cash and throwing out loans like confetti?

cordially,
Scofflaw

No, but on a simple level alone depositors could earn interest on their money/savings and the banks too. Old fashioned but still worthy IMO. The banks loaned out in recent times despite not having even remotely enough assets or deposits or stuffed with cash, so cash or no cash the banks may still do as they please and dream up other schemes.

Icepick

What actual laws that would prevent a banking crisis have actually been passed since '08? I mean laws that would make mortgages above 80% illegal.

LoveCoke

NIMAN wrote: »

What about the countless surveys telling us how many people have no disposable income after bills are paid. We last heard something like 1.7 million people have less than €50 (or was it €100) left after bills are paid.
.

that hardly means they have no savings but i agree they are unlikely to have 100k