Tuesday, 7 October 2008

It looks like Icesave is dead.....

From the BBC:

"Customers of the Icesave internet bank have been warned they will probably have to claim compensation for money held in their savings accounts. The authorities in the UK are preparing for the bank's parent in Iceland, Landsbanki, to be declared insolvent.

The Icelandic government took control of the country's second biggest bank on Tuesday to keep it afloat. Claims from Icesave's UK customers will be handled by the Financial Services Compensation Scheme (FSCS).

Halldor J Kristjansson, the new manager of Landsbanki, said it had not helped that customers in Britain wanted to take out a large chunk of money after the news broke about the nationalisation of Glitnir, the third largest Icelandic bank last week."

So this is globalization; a failed Icelandic bank dumps its liabilities onto the UK taxpaper.


aSteve said...

There are a lot of uncertainties.

It is not yet clear that Iceland won't return all deposits - only that, by existing treaty, they are not obliged to do so. The FSCS scheme will likely be next hit - at some point - with the costs passed on to surviving banks. The big thing, I think, is that if Iceland doesn't return all deposits... this will be the first occasion on which savers with a mainstream bank (that advertised heavily to the average-jo) will loose all money over £50K.

The upshot of this is likely to be interesting. This could easily lead to a run on banks which are not domiciled in the UK. This is contagion - and it can't easily be addressed. Even if - eventually - all deposits are returned... the uncertainty remains for the public.

Anonymous said...

Thanks asteve

mike said...

I only have 250 quid in the bank which was sufficient to keep the account open.

I withdrew most money in February after I saw articles on the ‘timesonline’ website which scared me. I send my heartiest thanks to those guys :)

Anonymous said...

Big moral hazard problem with the FSCS on the hook for stupid greedy people chasing the yield in stupid greedy banks.


dearieme said...

All those people selling bank shares today - what do they do with their cash once they receive it?

aSteve said...

Nick... How did you know this yesterday?

I agree, however, after Darling announced this morning that the FSCS will underwrite 100% of all deposits and strongly hinted that this would be done whenever necessary for any bank. With the caveat that we don't know how long that reimbursement might take, surely, this is an inducement for savers to pick the maximum interest rate rather than the safest run bank.

Nick von Mises said...

"Nick... How did you know this yesterday?"

Not sure I know what you mean by "this". I am, however, Captain Future :)