# What happens if one of the banks go bust



## cisco

What happens if one of the banks go bust

(a) to any savings

(b) to any loans taken out with them

(c) to a pension with them


anyone think this is likely to happen here?


----------



## z103

> anyone think this is likely to happen here?


Yes. By the end of the year, one of them is bound to go.
Look what's just happened with Lehman Brothers. I would not like to have bank shares!
Look at this
http://tinyurl.com/5lqgys


----------



## mask

Re: the questions listed by cisco;
      The question re: deposits has been well dealt with 
      but what is the outcome for any loans owing or
      pensions with them.?

      regards
      Mask.


----------



## ClubMan

Presumably in a liquidation situation the liquidator would have to see what s/he could do about collecting any outstanding debts including monies owed by borrowers?


----------



## lazylump

I have on deposit with one of the Irish banks the monies from the sale of a house and I am worried. Firstly if I am correct the guaranteed on this deposit is only about 20k and certaintly this will not cover it. I am in negotation to buy a property but due to a title issue it is dragging out and may continue for upto another year. So what do I do ? I was thinking of investing in the markets but find it a little turblent and also thinking of splitting funds up into 4 or 5 banks. Any ideas ?


----------



## ontour

I am also very interested in understanding which banks have the highest risk of getting in to extreme financial difficulty.  Is there a comparison anywhere of Savings to loans ratios of Irish banks.  I believe that a reliance on intra-bank lending could be a major factor.

Also is there public information regarding the breakdown of loan books?  Which banks are most exposed to development land or other short term speculations?


----------



## Sherman

lazylump said:


> I have on deposit with one of the Irish banks the monies from the sale of a house and I am worried. Firstly if I am correct the guaranteed on this deposit is only about 20k and certaintly this will not cover it. I am in negotation to buy a property but due to a title issue it is dragging out and may continue for upto another year. So what do I do ? I was thinking of investing in the markets but find it a little turblent and also thinking of splitting funds up into 4 or 5 banks. Any ideas ?


 
The general recommendation here seems to be put it in Northern Rock which is 100% guaranteed by the UK Treasury.


----------



## lazylump

Sherman said:


> The general recommendation here seems to be put it in Northern Rock which is 100% guaranteed by the UK Treasury.


 
Thanks; Northern Rock it seems to be just made contact with them and this 100% guarantee is only until market downturn stops but depositers willl get 3 months notice before its withdrawn. Asked them to send information re opening account.


----------



## ClubMan

lazylump said:


> Thanks; Northern Rock it seems to be just made contact with them and this 100% guarantee is only until market downturn stops


That's not totally accurate:


> [broken link removed]
> 
> On Tuesday 9 October 2007, Northern Rock agreed guarantee arrangements with the Bank of England and HM Treasury. These arrangements remain in place at the current time.
> 
> 
> The guarantee arrangements protect all savers, regardless of the amount deposited and apply to all existing accounts, all re-opened accounts and all new accounts.
> They also cover all new deposits, all further interest payments and movement of funds between accounts and all term deposits, including Fixed Rate Bonds, for the duration of their term.
> The guarantee arrangements will remain in place during the period of temporary public ownership and, as previously confirmed by the UK Government, such arrangements would not be withdrawn without at least three months notice in any event.





> Asked them to send information re opening account.


 Everything you need should be on their website!


----------



## Mrs.B

If an Irish retail bank fails (and I like all truly hopes that this does not come to pass) does anyone have any detail or idea of timeline in terms of accessing sums guaranteed.
Is it days, weeks or years?


----------



## Duke of Marmalade

The _Boss_ was just on RTE News stating that there should be no bail out of any Irish retail bank if it gets into trouble. Very strong statement. There are two possible doomsday scenarios.

1) A run on a major bank, whilst its assets still remain sound. This was the Northern Rock scenario. The monetary authorities must definitely bail out this situation as happened with NR. In fact this is already happening.

2) A major developer goes belly up to the point where the bank is actually insolvent i.e. its assets are less than its liabilities. This is a much trickier ideological call, but surely the _Boss_ cannot be recommending that _AIB_ or _BoI_ should be left to collapse in such a scenario. The result would be economic chaos (I think); the Government would have no option but to nationalise the stricken bank despite the ideological reservations.


----------



## Fitz26

Hi everyone..

Long time lurker..First time poster...Is now the time to panic..Cause im starting to panic..

We have 100K on deposit with UB..have gathered all the doccuments to open a Northern Rock account (as advised by all on here..) Just need to get the certified copies of passport from Garda tomorrow morning)..But what to do in the mean time..I rang the bank today and they said that i would be able to get the money out tomorrow in cash (if i ordered it today ) I talked myself out of it ..And now if i am to order it again it wont be until next Wednesday of next week...

What do you think the best option is ..(or am I working myself into a state) ..

Say for instance if you withdraw in the form of a bank draft and bank folds...Is that draft still as good as money in the hand.



Am i being wildly hysterical..?

Any answers greatly appricated..


----------



## Stevieorama

Also a long time reader first time posting here, I'm very worried about all this, currently have 70K in savings in BoI for house deposit and am so stressed over this.
The thoughts of only getting 20K is frightening if a bank folds.

I'm thinking of taking 60K and putting in Post Office as this is guaranteed by the state (Is this correct?), and leaving rest in BoI and continuing saving.

Don't know if I like the idea of Nortern Rock after what happened before, I do know there guaranteed by the UK government.

Any feedback would be greatly appreciated, thanks


----------



## wheels

What would happen my mortgage?


----------



## Mumha

This sort of talk is how runs begin ! Perhaps if you all spread 20K to each of the banks, it might have the same calming effect and prop up all the banks !


----------



## Stevieorama

Just watched prime time, did nothing to relieve concerns. I'm no financial advisor but cant the government see that they need to to allay any fears people may have and stand over any the main Irish banks.
If thousands were to take their money to northern rock surely that couldnt be good for Irish banking


----------



## Bronte

The government cannot say they will guarantee the banks, but in all probability they will save them if they can (AIB - 1970's) all who are panicking, just spread your money around.  Say 20K in each bank (in the Irish scheme) or up to the maximum of a foreign banks guarantee scheme.


----------



## brian1

Fitz26 said:


> We have 100K on deposit with UB..have gathered all the doccuments to open a Northern Rock account (as advised by all on here..) Just need to get the certified copies of passport from Garda tomorrow morning)..


  I tried opening an account with Northern Rock, but ran into problems getting the certified copy of passport from a Garda. My local garda station said they don't do that any more.  Did any one else run into this problem and how did you work around it?


----------



## Fitz26

brian1 said:


> I tried opening an account with Northern Rock, but ran into problems getting the certified copy of passport from a Garda. My local garda station said they don't do that any more.  Did any one else run into this problem and how did you work around it?




My Garda station did it no problem.There was a thread on here recently (i cant find it now) ..
The Garda Press Office said that Garda had to do it .But some Garda stations were holding firm that they did not do it.
But the moral of the tail was you basically have to find the right Garda Station..and even then You have to hope  one is in a good mood..(i.e. Helpful and not look like your asking him / her to sign there life away.!)
I think Pearse Street Garda Station was one that got mentioned as been very obliging..


----------



## twofor1

brian1 said:


> I tried opening an account with Northern Rock, but ran into problems getting the certified copy of passport from a Garda. My local garda station said they don't do that any more. Did any one else run into this problem and how did you work around it?


 

It doesn’t have to be a Garda station, there’s a list of options here http://www.northernrock-ireland.ie/accounts/ID/?productName=demand-online 
I got mine done in my local Post Office for a Rabo A/c. 

There’s also option B instead of a certified passport or driving licence.


----------



## Duke of Marmalade

Let's assume one of the big two goes belly up and there is no bail out. Immediately that is announced 40% of the money transmission system is defunct, that is 40% of people will have no facility to withdraw from their ATMs, write cheques or use cards. They will also have to open new current accounts and advise their employer to desist immediately from crediting the old one. All those direct debits to utilities etc. will have to be stopped and rearranged. Never mind the economics the very practicalities are unthinkable. 

A huge number of people will have their wealth decimated. 

Foreigners will lose all faith in Ireland Inc., (read any rating agency, they build in big time that the government will bail out one of the big two, if necessary). Then there is the contagion effect as there would be a run on the other banks and also other banks will have lent to the stricken entity.

I would guess that this would lead quickly to a contraction in the economy of about 50% with unemployment reaching 30% at least, in fact it could trigger a downward spiral into a Zimbabwe style abyss. 

If the Government stuck to its principles and let this doomsday scenario unfold when a simple nationalisation would solve the situation, that would forever make it unelectable, as well as being criminally irresponsible. The US, Sweden, Norway, UK have all known when to put pragmatism above principle, I trust our elected leaders to do the same if for no other reason than self preservation. (_Boss_, I really can't understand how you would recommend this course.)

Now does the same argument apply for a big specialist non retail bank? Not so sure. Does it apply for a small retail bank/building society? Not so sure.


----------



## paddyd

Lads, lets all take a breath for a sec.
We are a long LONG way off a run on any of the bigger irish banks, and even if it were to happen, we'd see it coming like the slow-motion disaster that was Lehman or any of the others that are filling up the column inches (bearing in mind that investment banks are a solar system apart from our own pretty conservative banks). Their only exposure is property, which is unlikely to kill any of them, but will certainly wound all of them (no harm in some blood-letting).

When something we know little about is suddenly thrust into the lime-light in front of our eyes, we tend to make rash decisions. Look at Northern rock. The bank run was a complete waste of time, and now its the safest place to put you money.

So as Jones from Dad's Army would say: "Don't Panic"


----------



## z103

> We are a long LONG way off a run on any of the bigger irish banks, and even if it were to happen, we'd see it coming like the slow-motion disaster that was Lehman or any of the others that are filling up the column inches


I am curious as to why you believe we are a long way off either AIB or BoI going bust?
For the last nine months the share prices have been plummeting. What makes them different to the American banks, or Northern rock?


----------



## Sunny

leghorn said:


> I am curious as to why you believe we are a long way off either AIB or BoI going bust?
> For the last nine months the share prices have been plummeting. What makes them different to the American banks, or Northern rock?


 
Exactly. Nothing is far fetched anymore. I was watching Primetime last night when they had the Banks Federation guy on and he was talking about strong capitalisation, good liquidity etc and was accusing David McWilliams of almost treachery for questioning the banking system. I then flicked onto to the BBC to find the British Banks Federation guy saying exactly the same thing as his Irish Counterpart. Of course I come into work today and find that the British Government has 'arranged' for Lloyds to takeover HBOS (well capitalised, plenty of liquidity) because it wasn't going to survive. 

Irish Banks are no different to banks in other countries.


----------



## Sunny

paddyd said:


> When something we know little about is suddenly thrust into the lime-light in front of our eyes, we tend to make rash decisions. Look at Northern rock. The bank run was a complete waste of time, and now its the safest place to put you money.


 
Hindsight is a wonderful thing!


----------



## z103

I've just noticed that propertypin.com has banned bank run rumour threads. Mightn't be a bad idea here.


----------



## horatio1

I don't think people looking for clarity on how much savings are secure clarifies as a bank run thread.There have been people on TV/radio and in the print media advising people on the same subject for the last year.The "someone told a friend of mine" posts may be hearsay but if you go by the amount of people discussing spreading your money between accounts on here, it is hardly that wide of the mark.
 I certainly was not impressed by the banking federation representative on prime time last night.His " trust me i'm a banker" approach does not wash with people anymore after years of overcharging and assistance in tax evasion.Are the posters who are saying lock the threads really advising that people should not have as much of their money secure as is possible.
 For years we have bemoaned that people are to lazy to shop around/change banks/switch motgages, maybe the current crisis will have this effect and hopefully the big banks will have their grip on the market loosened at last.They might then start to appreciate the client base they are left with.


----------



## blue_steel

I think its worth saying Rabodirect are safer for people with more than 20 grand on deposit with one bank. Under their deposit protection setup a single customer with a total balance of €40,000 would be reimbursed the full amount of the first €20,000 and 90% of the next €20,000 i.e. €18,000, so that customer will get back a total of €38,000 whereas with an Irish bank they would only get 20K.


----------



## Brendan Burgess

We have deleted some posts in this thread which were just pure rumour and written in a deliberate style to encourage panic. 

Straightforward questions, answers and analysis will continue to be allowed.

Irresponsible posts and loose talk will be deleted and the posters will be banned. 

Brendan


----------



## paddyd

leghorn said:


> I am curious as to why you believe we are a long way off either AIB or BoI going bust?
> For the last nine months the share prices have been plummeting. What makes them different to the American banks, or Northern rock?



well, to give a few quick examples, in the US the main banks under sustained pressure are all Investment Banks, and have been deserted by the traders that pumped them with cash for years, only to be replaced by short-sellers that feed on the bad news and drive the prices lower. Eventually no-one will lend them money as there is no confidence.
Investment banks take much much riskier investments that AIB or BOI will or have, ever done.
Leaving the smaller Irish banks aside, AIB and BOI are still very well capitalised, and could be described as 'old-fashioned' in their investments in comparison to modern investment banks.
AIB and BOI have no exposure to Lehamns investments nor the American Sub-prime mortgage products which were sold to (non-irish) banks around the world, and they've all suffered massive losses on the back of it.
Irish banks are still very very profitable even in the current conditions.

In tough times Banks rely on industry confidence; right now the investment banks are bottom of the pile.

As for HBOS they are far too leveraged, mainly in the UK property market and therefore rely on their trading partners for constant cash injection, as opposed to using their own capitcal. Once their partners stopped lending them money they couldn't stagger on for long, as the debt needs constant refinancing. AIB and BOI still maintain their 5-6% tier-1 capital ratios.

Shares tanking does not mean the bank will. Not everyone buys their bank shares for life! Day traders and short-sellers must be having a field-day with the irish banks these days.

I'd love to see the banks dragged to the edge of the cliff, but I don't think they'll ever fall off it.

EDIT: btw don't believe everything you hear from McWilliams or Prime Time. Its their respective jobs to stir it up. Hence we end up with one side saying we're on our way to hell in a handcart, and the other saying 'everything is fine'. Middle of the road is usually correct


----------



## z103

Thanks for that Paddyd


> As for HBOS they are far too leveraged, mainly in the UK property market and therefore rely on their trading partners for constant cash injection, as opposed to using their own capitcal.


Are BoI and AIB heavily exposed to property?


----------



## Sunny

paddyd said:


> As for HBOS they are far too leveraged, mainly in the UK property market and therefore rely on their trading partners for constant cash injection, as opposed to using their own capitcal. Once their partners stopped lending them money they couldn't stagger on for long, as the debt needs constant refinancing. AIB and BOI still maintain their 5-6% tier-1 capital ratios.


 
BOI and AIB are leveraged in the same way to the Irish and UK property markets. HBOS had a Tier 1 ratio of close to if not over 10%. HBOS had access to the BOE and ECB funding. And that still wasn't enough to save them. I am not saying that BOI and AIB are in serious trouble but do not think they are somewhat special compared to their UK counterparts.

I will also point out that this crisis has moved well beyond sub-prime investments, CDO's etc. Not investing heavily in these saved the Irish Banks last year when this all broke. Thats not why they are being hammered.


----------



## Sunny

paddyd said:


> Funny that, I see it as 5.7% as I speak, same as it was in Dec 07. they tried a rights issue in June to bump it to 6% and failed.


 
It didn't fail, it was underwitten. They raised €4 billion equity in July. I am looking at the latest rating agency reports and updates this month and they all say a Tier 1 of between 8 and 10%


----------



## Brendan Burgess

Yet more off topic stuff deleted.

This thread is not about how to make money from the current crisis. 

I don't want to close the thread, so please stay on topic.

Brendan


----------



## paddyd

leghorn said:


> Thanks for that Paddyd
> 
> Are BoI and AIB heavily exposed to property?



don't quote me on this, I'd have to find a link for you, but I believe they are both in the 35-40% bracket for property exposure, according to their own trade notes int he past month or two.
AIB's total loan book is something like €132bn.
[broken link removed]

HBOS's exposure is actually the same (37%/£40bn), but their clients base were some massive stockmarket-quoted UK builders, with many multi-billion pound deals, which went sour, so there were a number of big-ticket drops. They took equity stakes in a whole host of builders consequently, not just their sites; and the builders share price fell through the floor.
What killed HBOs and the others was the lack of inter bank funding; when confidence in then deminished, they could get loans for less than something like 5 or 10% over the EURIBOR rates, which was always going to be unsustainable, and immediately they needed a merger. Nothing else would save them.

http://business.timesonline.co.uk/t...ectors/banking_and_finance/article4144142.ece

on the face of it, they look quote similar, but risk is a lot less; and should see irish these banks through the next few years.
Remember in this thread we are not talking about how much profit the irish banks will contionue to make (remember they are still very profitable), but how many of then can survive. I believe the main Irish banks will be hit hard; but will survive.
Anglo, for insistance have a loan book of about €70bn, with 90% exposure to commercial property.


----------



## z109

Paddyd, the figures you are quoting are for outstanding Construction and Development loans excluding residential mortgages and Buy-to-Let mortgages.

The figures I have (from a Dresdner note quoted by johnboy on thepropertypin):
BoI: C&D 20% Total property exposure: 69%
AIB: C&D 35% Total property exposure: 59%
Anglo: C&D 95%

Edit: On a separate issue, the newsmaking US banks that went bust were indeed investment banks, but Indymac bank which collapsed last month was not. It had 32 bn of assets under management. Its problems stem from residential mortgage losses.


----------



## Duke of Marmalade

The OP asks "_what happens_?" not "_what are the chances?_".

What happens depends on who we are talking about. I have suggested in an earlier post that either of the Big Two would probably be nationalised or else, assisted by guarantees from the Gov, taken over by a foreign bank and (except for shareholders) it would be more or less BAU.

If a lesser retail bank/BS went the Authorities would probably organise a bail out by another bank/banks, again probably no pain for depositors.

If a Big Specialist Bank went bust, Authorities might just let it go under.

So finally to the question what if a bank is actually allowed to go bust?

We would have the usual liquidation process, I presume. The liquidator would try and maximise the assets by selling them off in various bits and pieces and then it would divvy it out to creditors in some legal order. Revenue first. Depositors very high in the list (I think, or would the wholesale funding rank before retail depositors, anybody?) Then down the pecking order.

Worst case the depositors will get Xc in the € returned. And if that is below the 90%/20K the guarantee scheme would top it up.

Am I right in this? Is there another option whereby a receiver nurses the assets along rather than sell them off and pays off creditors on the drip?

One thing is for absolute sure borrowers cannot walk away from their loans just because the bank has gone bust.

Now if one of the big two were allowed to go belly up, well, well, well, that truly that would be economic armageddon.  Firstly the money transmission system would be in chaos.  There would almost certainly be a run on the other big bank and other banks both by domestic retail depositors but also by foreign wholesale lenders.  These banks in turn would collapse like dominoes.  The fire sale in properties by liquidators would trigger a 90% fall in property values.  The money transmission system would actually cease to function.  The economy would shrink initially by 50% before entering a downward spiral.  Unemployment would quickly reach 30% and keep rising.  The good news would be for those who had squirrelled away assets abroad they would have nice empty roads to drive on.


----------



## PM1234

Harchibald said:


> The OP asks "_what happens_?" not "_what are the chances?_".
> 
> What happens depends on who we are talking about. I have suggested in an earlier post that either of the Big Two would probably be nationalised or else, assisted by guarantees from the Gov, taken over by a foreign bank and (except for shareholders) it would be more or less BAU.
> 
> .



Sorry for this basic question - what is the impact for shareholders if taken over?


----------



## Duke of Marmalade

PM1234 said:


> Sorry for this basic question - what is the impact for shareholders if taken over?


No straight answer. This is the experience so far:

Northern Rock - Zilch (I think) though maybe some distant hope in the future

Bear Sterns - buttons.

Fannie and Freddie - buttons again

HBOS (not quite the same) - big premium on last quoted share price but this a long way off what it was just a few weeks before.


----------



## PaddyW

So, Harchibald, from what I can gauge on your explanation, it is very unlikely that either of the big two would go to the wall, due to the fact that the country would basically self destruct?


----------



## haventaclue

If I can could I ask a basic question

As the op puts it "what happens if one of the banks go bust"

I just would like to know is my current account safe or is it the same as a deposit account €20 guaranteed or 90% of what is in it


----------



## ClubMan

haventaclue said:


> I just would like to know is my current account safe or is it the same as a deposit account €20 guaranteed or 90% of what is in it


I presume you mean €20*K* but even for savings accounts this is not totally correct. It's 90% of the amount up to a limit of a maximum payout of €20K. In effect this means that deposits up to €22,222 are 90% guaranteed. It's not €20K or 90% of any lower amount! 

There was a post earlier today on another thread about exceptions from the compensation scheme. Current accounts may be on that list.


----------



## csirl

I agree that bail out is most likely option for the big banks. Though it isnt without cost - would mean tax increases all round.


----------



## paddyd

Harchibald said:


> No straight answer. This is the experience so far:
> 
> Northern Rock - Zilch (I think) though maybe some distant hope in the future
> 
> Bear Sterns - buttons.
> 
> Fannie and Freddie - buttons again
> 
> HBOS (not quite the same) - big premium on last quoted share price but this a long way off what it was just a few weeks before.



thats correct Harchibold; and in HBOS's case you actually get 0.85 Llyods shares for each HBOS one; so its the Llyods shareprice you'd be watching from now on.
In effect if you had HBOS when they were 6-800 per share, you are now forced to swap them for Llyods shares at about 250 per share. Nothing to stop Llyods shares from increasing significantly long-term of course, so this should be seen as a good thing for HBOS shareholders.
It was 250 or zilch. I'd go with the 250.


----------

