# Is the new 100% of 100k a good idea?



## Brendan Burgess (19 Sep 2008)

Government has announced that the limits will be raised to 100% of 100k


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## GeneralZod (20 Sep 2008)

*Re: Government to increase safety deposit limit to €60k?*

Presumably this will give them an excuse to offer lower interest rates as they'll need to make higher contributions into the scheme.


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## Duke of Marmalade (20 Sep 2008)

*Re: Government to increase safety deposit limit to €60k?*

Is that 100% of 200K for a married couple in any Irish deposit taker? What about the _Boss'_ point that this is only as good as the size of the compensation fund? I heard Lenihan on radio - sounds very like a *legal* *Government* guarantee.

I still think yesterday's statement amounts to a *moral* Government guarantee of *all* deposits.

These are happy days indeed for depositors. They can enjoy some very juicy rates with no risk whatsoever up to €200K.

This can't be great news for the Big Two as their perceived advantage of TBTF or indeed their general better security is considerably neutralised.

I also think that this announcement substantially eliminates the Northern Rock advantage of a British Government guarantee, it was a good move if for no other reason than this. You can get better than 5% on 200K on (is it 10?) Irish institutions, hey that's €2million for each couple.


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## moneyminder (20 Sep 2008)

*Re: Government to increase safety deposit limit to €60k?*

Great news but one week too late for all the hassle customers and finanacial institutions had all week with people hysterically withdrawing and moving money. 
It would have got far worse next week too, especially with Eddie Hobbs stirring it last night on the Late Late suggesting a bank was going under and he knew who it was (smug grin) but wouldn't say as he could not start a bank run. I have no time for him now.


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## Guest124 (20 Sep 2008)

*Re: Government to increase safety deposit limit to €60k?*

I welcome the move but maybe they should have at least matched the highest rate in any European Country. Italy is €103,000 for example.


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## rmelly (20 Sep 2008)

*Re: Government to increase safety deposit limit to €60k?*



Brendan said:


> Fitz
> 
> I think it will be done very quickly. It is a form of emergency measure.
> 
> ...


 
The existing fund definitely wouldn't be sufficient - I read somewhere that it is sufficient to cover the existing 20k guarantee for 20,000 savers - i.e. approx €400 million. Changing to 60k (or 100k) means the government will need to fund it, as significantly increasing the contributions from the banks (currently 1% of deposits (I think?)) would surely adversely affect the banks?


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## irishlinks (20 Sep 2008)

*Re: Government to increase safety deposit limit to €60k?*

I wonder how Credit Unions got included? They won't have been contributing to the "pot"  - will they have to make a bigger contribution to cover the missing years? I doubt it.
Also - as  an earlier poster pointed out - if the size of the fund isn't big enough to cover the deposits in a bank that does get into trouble - then what happens?


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## Duke of Marmalade (20 Sep 2008)

*Re: Deposit guarantee scheme increased to 100% of €100k*

Yep, it's 100% of 100K per person per deposit taking institution and it seems to be a no holds barred Government guarantee, nothing about this compensation fund nonsense.

_The Winners_

Depositors for sure, though will it reduce competition? I rather think it might actually increase competition.

Banks other than the Big Two.

Credit Unions, who are the surprise windfall beneficiaries.

Brian Lenihan, good move Brian.

_The Losers_

Rabo - poor Rabo banging on about its gazillion A rating and paying rather less than the going rate, and it only has a miserable Dutch guarantee. Watch all that recent Rabo money being transferred to paddy banks.

Northern Rock, somewhat similar to Rabo.

An Post, but do they really care?

Life companies - they don't seem to have any guarantee scheme.

_Neutral_

The Big Two. A mixed blessing here. Yes they were suffereing a bit from the "let's have oodles of 20K deposits" syndrome but had an advantage in pitching at higher deposits because of perceived TBTF.

There is also the question of whether banks will have to fund this vastly increased guarantee scheme, but I am getting a sense that it will not be funded but will be pay-as-you-go.


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## Brendan Burgess (20 Sep 2008)

*Re: Deposit guarantee scheme increased to 100% of €100k*

Irish Links asked:



> I wonder how Credit Unions got included? They won't have been contributing to the "pot"



The pot is a percentage of the current deposits at the financial institution. 

So if a bank's deposits reduce, they get some money back off the scheme. 


Brendan


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## Brendan Burgess (20 Sep 2008)

*Re: Deposit guarantee scheme increased to 100% of €100k*

The big loser is the Irish taxpayer. 

We are now guaranteeing the deposits of all financial institutions, no matter how reckless they have been in their lending or their investing. 

I had not been aware that it was a government guarantee. How can this get through the EU? Surely that is a soft subsidy to Irish banks and it increases their competitiveness over other EU banks.

Brendan


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## shanegl (20 Sep 2008)

*Re: Deposit guarantee scheme increased to 100% of €100k*

Is it actually a government guarantee though? All I've read says that its the usual deposit scheme, paid for by the banks themselves. Obviously €500m may not be enough, after which I've read that the CBFSAI can somehow provide more. But where does this come from? The taxpayer? The minimum reserve of the banks? Its not like they can just print the money is it?


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## Duke of Marmalade (20 Sep 2008)

*Re: Deposit guarantee scheme increased to 100% of €100k*

It is an incredible development, _Boss_. I think Rabo in particular will be writing a letter on a stiff piece of cardboard to Charlie McCreevey or whatever Eurocrat is concerned with these matters.

I think this thing is going to be unfunded. It will only cost the Irish taxpayer if it is ever called upon, but I think (judging by yesterday's speech by Lenihan) it was judged that in practice the Irish taxpayer would have to pay up anyway. Might as well accept that fact now rather than wait, this way I think the chances of it ever being called upon have been reduced.

The Credit Unions is a real surprise. Surely not per CU. Weren't there some wobbly CUs outside their existing scheme, are they covered as well?


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## z109 (20 Sep 2008)

*Re: Deposit guarantee scheme increased to 100% of €100k*



Brendan said:


> The big loser is the Irish taxpayer.
> 
> We are now guaranteeing the deposits of all financial institutions, no matter how reckless they have been in their lending or their investing.
> 
> ...


Brendan, did you ever think it would be any different? What was the government going to do? Let voters lose money? Look what happened in the UK.

Expect a big increase in the levy to increase the fund, with a new levy on credit unions. Whether this results in a lower interest rate on deposit accounts, a separate levy on interest, or lower bank profits will be interesting to see.

The EU, as I see it, just specifies that there has to be a scheme that pays out a minimum of 20k. As noted elsewhere, the Italian scheme already pays out up to 103k, so I don't see any problems. As long as the scheme is open to all entrants in the Irish market, it is not discriminatory from a trade point of view.


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## kaplan (20 Sep 2008)

*Re: Deposit guarantee scheme increased to 100% of €100k*

Brendan your initial comment is correct. It is not a quite a government guarantee. 

Deposit Guarantee Schemes (DGS) are designed either front end funded or partial funding with post event funding. 

A large fund up front fund is created, which is used to finance compensation for ordinary depositors in the event of a failure of one or more credit institutions. 

The other type, which is the one we have, creates a smaller fund. 

Where either runs out of money it can call on its members for more. 

Thus a DGS has a call on the balance sheets of its members. In addition all schemes have lines of credit with national treasury as they must be able to compensate savers. This is where the government backing happens.  

Of course if a catastrophic event occurs- the failure of a number of significant firms the scheme would not be enough which is where government steps in.

Some schemes also allow for supports for a troubled firm where it can show it had a reasonable chance of survival. Designing a scheme requires a decision on which type it is to be . Paybox - pay out when a firm defaults or support type. Support and or payout.  

One reading of the effect of the Ministers announcement is a simple Ministerial order increasing the existing limit to €100k plus an amendment to legislation to cover credit unions.

Funding is a separate issue either ex-post or ex-ante not directly associated with its guaranteed amount. Funding up front requires a higher rate than funding partially up front. I imagine the existing funding rate won't change by much. 

Finally the guarantee is likely to be 100% of 100k per account holder rather than account. One of the most important issues is how fast a scheme will pay out. In the US depositors have access to their savings within 48 hours. But here it could take a minimum three months extendable out to nine months. The UK authorities are looking at one week. The issue is not that people’s money is covered but also that it is not locked up. So immediate or near immediate access is a must.

(if this post appears twice my apologies)

Kaplan


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## Brendan Burgess (21 Sep 2008)

*Re: Deposit guarantee scheme increased to 100% of €100k*

I have tried to summarise and simplify the implications for consumers in this thread.

We can continue to speculate on the winners and losers in this thread.

Brendan


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## ClubMan (21 Sep 2008)

*Re: Deposit guarantee scheme increased to 100% of €100k*



Harchibald said:


> _The Losers_
> 
> ...
> 
> Northern Rock, somewhat similar to Rabo.


Are you sure? Their guarantee (courtesy of _HMG_) is 100% of *all *deposits *and interest*. Even the new _Irish _guarantee scheme is not that generous.


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## ClubMan (21 Sep 2008)

*Re: Deposit guarantee scheme increased to 100% of €100k*



Brendan said:


> How can this get through the EU? Surely that is a soft subsidy to Irish banks and it increases their competitiveness over other EU banks.


The press release makes reference to _EU _issues, the legal basis of the (extended) scheme and the deposit guarantee schemes in other countries. Surely if this was a problem then similar schemes (e.g. €103K guarantee in _Italy_) would also be questionable?

Minister for Finance announces increase in Deposit Guarantee Limit


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## Duke of Marmalade (21 Sep 2008)

*Re: Deposit guarantee scheme increased to 100% of €100k*



ClubMan said:


> Are you sure? Their guarantee (courtesy of _HMG_) is 100% of *all *deposits *and interest*. Even the new _Irish _guarantee scheme is not that generous.


You are of course so right as usual, _Clubbie_. I meant similar to Rabo in losing its advantage but there the similarity ends. No way will NR be writing to Charlie McGreevy, in fact it is itself facing a competition complaint from Danske.

I don't think we are talking about a scheme or a fund at all, though I may be forced to eat those words. We are talking about the style of Government guarantee given to Northern Rock and indeed all solvent British banks - that isn't funded. Hence the need for legislation. 

Funding the scheme would be silly and would defeat the purpose of this bold move, it would be silly to leave people with the niggling doubt "but what if the fund hasn't enough?" The only "what if" is the bankruptcy of Ireland Inc. and I am afraid there are no silver bullets for that one. 

Also I don't think the Government could have put together a consensus for a funded scheme across the board. Funding would also cost the consumer, rather needlessly in my view.

This would have been a very dangerous move if we had our own currency, I would see the exchange rate plummeting.  But under the shelter of the Euro  Brilliant move Brian!! Don't spoil it all by requiring funding.


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## churrusco (21 Sep 2008)

Sorry but I can't really see the logic on how letting the savers of a country to lose all their money can really benefit taxsavers.

I personally think that this initiative is really good after all the hysteria we have lived last week. At the same time, Irish savers do not need to think on moving their money to banks from other countries which again I personally can't see how that could benefit Irish taxsavers.

As a side note. I would love if my home country had a similar initiative. As it is not the case, I will be moving some of the money I own in my home banks to Irish banks pretty soon. I imagine if other people does the same it can be good for Irish banks liquidity.

Of course, in case of economic chaos Irish taxpayers will suffer (and I know my last paragraph could be used to argue that the pain will be bigger), however I personally would prefer our government to spend Irish taxpayers money in saving Irish people savings than to see our government spending Irish taxpayers money on saving private companies, which inevitably would be the case.

Cheers.


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## Bronte (22 Sep 2008)

Not all Irish institutions accept deposits from non residents.  I imagine that any complaints to the EU currently about  this being unfair and Dansk also complaining will fall on deaf ears as we are currently living through an amazing period.  We even have heard that bank mergers will not be submitted to the competition authorities such is the precariousness of the situation.  Brian Lenihan made a bold move and while it is helping the banks it helps savers too.  He must have thought that there was going to be a run on a bank and that wouldn't be in any of our interests.  I still think the banks should be punished for created this mess in the first place but that's not going to happen either.  Maybe they will now tax banks profits more highly as the price for being so incompetant.


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## Don_08 (22 Sep 2008)

Interesting point by Churozzo

Will we see a flood of deposits from other countries worried about the safety of their deposit seeing as we now offer one of the highest guarantees in Europe, and are English Speaking.  ( No offence to Italians but would not be as common a language)


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## churrusco (22 Sep 2008)

As bronte pointed out, not all Irish institutions accept deposits from non residents.

In my case non-national but resident and with money in my home country that will be soon just transfered here as I feel safer. 

P.S. sorry about using the inexistent "taxsaver" work in a couple of places in my post where I meant "taxpayer" :S


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## Bronte (23 Sep 2008)

What is TBTF in relaton to the two big Irish banks? Post 3.

The biggest winner out of all this is Joe Duffy, I'm not normally a fan but it's hard to believe that it's just a coincidence there was war about his programme last week and the minister just happened to have a new deposit scheme ready to go?  We often on AAM tell people to get onto Joe and goodness it works.  I was aware that a run on a bank would have done none of us any good and I had moved money from a deposit account into my current account ready to move it out of a bank but now I don't have to.   I even looked up buying prize bonds but they only take 1.5K a day on laser card otherwise I would have temporarily bought quite a few of them so yes I think the new 100K is fantastic.


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## Duke of Marmalade (23 Sep 2008)

*T*o *B*ig *T*o (be allowed) *F*ail.

I agree that Joe has done well.  The Minister has rounded on him but if the system can't withstand a bit of voxpop on the Joe Duffy show then it is the system which is at fault, not Joe Duffy.


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## Perplexed (24 Sep 2008)

Are Prize Bonds considered a Financial Institution ? I thought they were more like a lottery where you get your capital back

Can I just say that the collapse of any of our banks would ultimately be bad for the whole Irish economy. The likes of Joe Duffy & Eddie Hobbs stirring it up and making people panic is exactly what we do not need.

The sooner all the bad debts are declared the clearer the picture will be.

The 100k guarantee is a very good idea. Otherwise a few of our banks would have been in a sorry state this week.

Yes, I do work in a bank and Thursday was not much fun. It's the first time I've witnessed what looked like the beginning of a run. Thank God people calmed down ! How do you think the Govt would cope if up to 10000 bankers joined the unemployed ranks ?


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## Raskolnikov (29 Sep 2008)

The whole scheme sounds like a bluff to me. I was even sceptical about the old €20,000 of deposits being covered. Now they're trying to tell us that they have the money to cover 100% at €100,000? Even if your cash is covered, how long are you waiting before you get it back? It all smells too fishy.

If there's one lesson I have learned from the financial crisis, it's that the share price is always a leading indicator of trouble. Now that the Irish banks have seen 70% of their value wiped out, I have no confidence in them. Northern Rock seems like the best place for your cash now.


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## CannyMcSavvy (30 Sep 2008)

Is today's announcement the best thing since sliced bread?
Some thoughts on what could happen as a result.

1. Deposit interest rates from Irish banks may fall significantly - especially if Irish banks can borrow at sovereign rates. 
There's a fair chance we'll be kissing goodbye to those 6% - 8% accounts pretty soon. Fixing your rate now mightn't be a bad idea.

2. The government may now feel justified in hiking DIRT substantially - this guarantee has to be paid for somehow. 
A rumour of a DIRT increase had been doing the rounds anyway.

3. Significant moral hazard. All those dodgy loans to developers, speculators and flippers - will we bother calling them in now? Or will we just roll them over for another couple of years. 
Sure we can borrow another few hundred million to tide us over - guaranteed by the taxpayer!
The guy struggling to pay a 40-year mortgage may just have handed a get-out-of-jail card to reckless bankers, developers, speculators and flippers.

4. Are there opportunities for hedge funds and hostile foreign bank takeovers to exploit the guarantee at the taxpayer's expense?

5. Government bond credit default spreads have widened from 30bps to 60bps following today's announcement. In other words, potential lenders to Ireland Inc now view the economy as a more risky prospect. 
Those billions we need to borrow to balance the books in 2009 are going to cost more.

The devil really is in the detail here. Something had to be done, but let's not get carried away on a wave of euphoria. Let's hope the government draft watertight, detailed and responsible terms and conditions for this guarantee.


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## Guest124 (30 Sep 2008)

Thread should be locked - just look at the title. If I have 10 million in an Irish Bank it's guaranteed.


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## ang1170 (30 Sep 2008)

CannyMcSavvy said:


> The devil really is in the detail here. Something had to be done, but let's not get carried away on a wave of euphoria. Let's hope the government draft watertight, detailed and responsible terms and conditions for this guarantee.


 
We can rest easy so - just look at what a great track record they have on that score......


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## lightswitch (1 Oct 2008)

We can rest easy so - just look at what a great track record they have on that score......

So true!


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## gmoney (1 Oct 2008)

Does anyone know whether the 100% guarantee for 100K savings been regulated or not ?? I talked to Anglo Irish Bank and was told that this has not yet been regulated so it doesnt take effect right now. If the bank fails today for example you still can only get 90% of maximum 20K.


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