By: BILL BLEVINS
Bill Blevins is Managing Director of Blevins Franks. He has specialised in expatriate investment and tax planning for over 35 years. He has written books and gives lectures on this subject in Southern Europe and the UK.
SATURDAY SEPTEMBER 20 – The Irish government increased the statutory limit for deposit guarantee schemes for banks and building societies from 20,000 to 100,000 euros per depositor per institution.
Tuesday September 30 – In order to ‘maintain financial stability for the benefit of depositors and businesses and in the best interests of the Irish economy’, the Irish Government guaranteed all deposits (retail, commercial, institutional and interbank), covered bonds, senior debt and dated subordinated debt, with six banks: Allied Irish Bank, Bank of Ireland, Anglo Irish Bank, Irish Life and Permanent, Irish Nationwide Building Society and the Educational Building Society and such specific subsidiaries as may be approved by Government. The guarantee will expire at midnight on September 28, 2010.
The surprise announcement stirred up other EU governments who complained this gave Irish banks an unfair advantage and that bank deposits would flow out of their home banks and into Ireland.
Tuesday October 2 – Greece announced that deposits in all banks operating in the country will be guaranteed.
Wednesday 3 – The UK Financial Services Authority (FSA) increased the Financial Services Compensation Scheme (FSCS) from 35,000 to 50,000 pounds Sterling (64,000 euros), starting from October 7. FSA chief executive Hector Sants said: “In addition, the Chancellor has made clear that the Authorities will do whatever is necessary to maintain financial stability and protect depositors.”
An FSA statement also said that it “is also to consult on further reforms, including considering whether the compensation limit should be higher still; the speed with which the FSCS can pay compensation; and the rules surrounding whether deposits are covered on a legal entity, a ‘brand’ or an ‘account’ basis. This will provide effective long-term compensation arrangements in which consumers can have confidence.”
Ninety-six per cent of all UK bank customers were covered by the 35,000 pound Sterling guarantee. This has now increased to 98 per cent. Nonetheless, research by Credit Suisse reveals that the two per cent of customers not covered hold around 40 per cent of all British savings. With 1.17 trillion pounds of British savings, this would mean that around 468 billion pounds is not covered by the increased guarantee.
Sunday 5 – Germany offered a blanket guarantee on retail bank deposits to prevent panic withdrawals after the rescue of Hypo Real Estate, one of the country’s largest lenders, was put in doubt. Austria announced similar measures.
Monday 6 – Denmark guaranteed all bank deposits. France, Portugal, Spain and Sweden indicated they were considering similar action. In the UK, Chancellor Alistair Darling said: “I want to make it clear that we will do whatever it takes not only to stabilise the system but to help going forward, and that means perhaps some pretty big steps that we wouldn’t take in ordinary times.”
Tuesday 7 – EU finance ministers from the 27 Member States met in Luxembourg for emergency talks. Following the meeting, French finance minister Christine Lagarde who led the talks announced: “We agreed that all Member States would, at least for one year, provide deposit guarantee protection for savers of at least 50,000 euros, while noting that many countries are determined to raise their minimum to 100,000 euros”.
The European Commission will draft a more formal agreement in the coming weeks, which should also reduce the amount of time taken to pay the depositor his money from months to days. The Commission was also asked to produce urgent proposals “to promote convergence of deposit guarantee schemes”.
Within hours of the close of the meeting, Austria, The Netherlands, Spain and Belgium announced that their deposit protection will be increased to 100,000 euros. Portuguese finance minister Fernando Teixeira dos Santos assured all Portuguese that savings in a Portuguese bank were guaranteed.
Wednesday 8 – Jersey chief minister Frank Walker confirmed that the States would guarantee every penny of Islanders’ savings until a deposit protection scheme is drawn up.
Thursday 9 – The Isle of Man compensation limit was increased from a maximum of 15,000 to 50,000 pounds Sterling. The Treasury had said it would apply to all individuals wherever resident. Guernsey officials began developing a protection scheme, to be in place by year end.
Other government measures
At their meeting, European finance ministers agreed on a set of principles to be followed when trying to save “systematically relevant financial institutions”. State interventions should be “timely” and “temporary”. To help boost confidence in the banking system, they promised to rescue stricken big banks – but not the executives behind the failure.
In the UK, Darling unveiled plans on October 8 to inject at least 50 billion pounds Sterling into eight banks and building societies to bolster their depleted balance sheets. The Government will receive preference shares in return for the funding. Public money is being used and in effect the banks are being part-nationalised. Fifty billion pounds Sterling is roughly equal to 1,400-2,000 pounds per taxpayer. A further 200 billion pounds was made available for short-term borrowing.
Darling explained: “By the government stepping in, we will begin the process of allowing banks to begin lending to each other again over the longer-term.” He added, “I dare say there are other things we may have to do. I’m not going to rule out any options.”
Spain also announced that it was setting up a 30-50 billion euros emergency fund to provide liquidity to the financial system by buying Spanish bank assets.
Later that day, in a co-ordinated move, the Bank of England, European Central Bank, US Federal Reserve, Bank of Canada, Swiss National Bank and Sweden’s Riksbank all cut their interest rates by 0.5 per cent in a bid to help their economies.
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