Wednesday, 28 January 2009

More foolishness at the Post Office

According to the Times, post office savings account holders are not covered by the UK deposit insurance scheme. It turns out that Post Office accounts are managed by the privately owned Bank of Ireland. Therefore, it is the fiscally challenged Irish government and not HMG that will, in theory, end up footing the bill for any future deposit runs.

We are not talking small numbers here. The Post Office has some 2 million customers here in the UK, looking across the cold Irish sea for financial re-assurance.

What would happen if, mercy protect us, the Bank of Ireland failed. We would have frantic queues outside the state owned UK post offices, looking for cash held by a neighbouring country. What would happen next? The treasury and the Bank of England would suddenly wake up to the fact that this deposit run could spread into other banks. Within days if not hours, HMG would have to offer a blanket deposit guarantee.

There is, however, a deeper question here. What was the government thinking when it approved the out-sourcing of post office financial services to a foreign bank. Could they not see the obvious implications of an overseas banking crisis on accounts held at the Post Office. Whether they acknowledge it or not, there is an implicit deposit guarantee on Post Office accounts.

No doubt, out-sourcing Post Office financial services seemed like a good idea the time.


Anonymous said...

There is an implicit guarantee on all retail bank deposits in this country now.

The good old days (Q3 08) where people were talking about whether it was 35K or 50K are long gone.

Anonymous said...

Bonkers, isn't it? The Post Office accounts are intended to be very secure places for the sma' folk to save their pennies. Only bloody fools would take the risk of having the accounts run by a foreign bank. It's no use saying that Brussels rules require blah, blah, blah; the French would have found a way around Brussels rules.

Anonymous said...


Nick von Mises said...

I don't see the problem. The Post Office offered a banking service delivered in Ireland under Irish rules. It still does. If it goes tits up that's a problem between the UK customers and the Irish regulators. The UK tax payer has no dog in this fight.

BTW, I did a work project in early 2008 that involved looking at the BoI tie-up with the PO. My advice was to run like hell in the opposite direction.

Anonymous said...

Bonkers is right.Post office accounts seen as guaranteed by the government itself can play an inportant role in accumalating small amounts of money for use as secure national capital.

For example Japan after ww2, very
low interest accounts , because seen as safe , P.O. savings could then be directed by the government MITI to say Mitsubishi, as long as they agreed to develope export products and industries. Thereby providing capital at a cheaper interest rate than their international competitors . These P.O accounts provided a huge funding source a basis for all later developement.
But today Brown acts surprised that the private U.K.banks only do 20% of their lending in the U.K.
As the irishman in boston says HA ha.
While Nick von mises free trader doesnt want to know about national interest just freedom for capital.well the free trade is the 20% but the cost of that is national bills.

Anonymous said...

P.S. and some 'smart" English people make jokes about the "stupid" Irish.