# What are your thoughts, on how a default, will affect our hard earned deposits ?



## TomPetty (25 Jan 2011)

Hi Folks, 
  With the general consensus out there being, that default is eventually inevitable, 
  What are your thoughts on how this will affect our hard earned deposits in : 

  1. Irish Banks
  2. Other banks resident here in Ireland ie Nationwide UK / Investec / NIB etc....

Will it be just bond holders that will get "burned" on will the average depositer also feel the pain ? 



Regards and Thanks.


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## Lightning (25 Jan 2011)

My thoughts on the level's of risk:

1) The greatest risk is with all An Post/NTMA savings products. These are invested directly in the national debt. If/when we default/restructure our debt, the greatest risk of 'haircuts' will be to savers in these products.

2) I would see the second greatest risk with banks that would unquestionably collapse without Irish state support. Namely, Anglo, INBS and AIB. 

I would see much lower levels of risk with foreign banks based in Ireland such as KBC, Investec etc. 

Having said all this, a sovereign debt restructure might be managed in such a way as not to impact retail savers who are invested in the national debt. It also might not, the risk is not zero.


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## infacta (25 Jan 2011)

It seems that by law the NTMA is forbidden to favour one set of lenders over another. So An Post deposits face the same risk as foreign lenders to the NTMA. Source of this info is the NTMA itself.


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## Lightning (25 Jan 2011)

link?


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## dockingtrade (25 Jan 2011)

is not a simple as our savings in irish banks are as safe as the savings in a german bank. Because our central bank as well as the german's bank is the european central bank?
As for default how can we be let default if there are funds available in the euro zone I know we'll be strecthed to the limit but when it comes to a default by ireland will destroy the euro (credibilty, contagion)ie it cant happen  Euro people would eventually have to print more yoyos if it came to it.

If it did come to it and the saving bonds/certs took a hit eg 50c in the € are you still owed the difference payable in the future?


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## Lightning (26 Jan 2011)

dockingtrade said:


> If it did come to it and the saving bonds/certs took a hit eg 50c in the € are you still owed the difference payable in the future?


 
Debt restructuring does what it says on the tin. You take a haircut and you lose a portion of your investment. The Economist magazine said they think the restructure could be up to 70% if it happens.


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## Chris (27 Jan 2011)

dockingtrade said:


> As for default how can we be let default if there are funds available in the euro zone I know we'll be strecthed to the limit but when it comes to a default by ireland will destroy the euro (credibilty, contagion)ie it cant happen  Euro people would eventually have to print more yoyos if it came to it.


And printing more money, i.e. creating inflation, has the exact same result as defaulting, i.e. your creditors do not get the same out as they paid in. I believe this is the road that pretty much all central banks are heading down, as governments will keep denying that they are in financial difficulty.



CiaranT said:


> Debt restructuring does what it says on the tin. You take a haircut and you lose a portion of your investment. The Economist magazine said they think the restructure could be up to 70% if it happens.



I assume you mean paying out 30c on the €? That would be about the same as Russia and Argentina restructured and probably not too far off the mark.


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## Brian_R (30 Jan 2011)

When, not if, we default, all of the Irish banks will have to declare that they are insolvent and will have to default on their deposit holders. 

The amount of liquidity provided by the Central Bank of Ireland is totally unsustainable, when it is realised as a loss then the whole Irish banking system will collapse.


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## TomPetty (30 Jan 2011)

Brian_R said:


> When, not if, we default, all of the Irish banks will have to declare that they are insolvent and will have to default on their deposit holders.
> 
> The amount of liquidity provided by the Central Bank of Ireland is totally unsustainable, when it is realised as a loss then the whole Irish banking system will collapse.




So what is your advice with the above in mind ?


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## Chris (31 Jan 2011)

Brian_R said:


> When, not if, we default, all of the Irish banks will have to declare that they are insolvent and will have to default on their deposit holders.
> 
> The amount of liquidity provided by the Central Bank of Ireland is totally unsustainable, when it is realised as a loss then the whole Irish banking system will collapse.



I agree with the when not if statement. But the system need not collapse if it is liquidated in an orderly fashion. Iceland's banking system did not collapse after the referendum on bailing out banks.


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## Lightning (31 Jan 2011)

Chris said:


> I assume you mean paying out 30c on the €? That would be about the same as Russia and Argentina restructured and probably not too far off the mark.



30c was the figure in the Economist, they probably took it from historical precedents.



TomPetty said:


> So what is your advice with the above in mind ?



If you agree with Brian, then the only advise is to offshore your deposits.


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## TomPetty (1 Feb 2011)

CiaranT said:


> If you agree with Brian, then the only advise is to offshore your deposits.




Thanks Ciaran - If I Offshore my deposits, do I need to pay 41% or there abouts, on any interest I earn abroad, or just the prevailing Dirt rate ?


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## Lightning (1 Feb 2011)

Prevailing DIRT rate which is 27% for most deposit products and 29% for long term deposit products.


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## WaterWater (2 Feb 2011)

What term/product is classed as a "long term" deposit product?


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## Lightning (2 Feb 2011)

3 years +


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## Happy Girl (2 Feb 2011)

Brian_R said:


> When, not if, we default, all of the Irish banks will have to declare that they are insolvent and will have to default on their deposit holders.
> 
> The amount of liquidity provided by the Central Bank of Ireland is totally unsustainable, when it is realised as a loss then the whole Irish banking system will collapse.


 
In the above scenario would deposits in non Irish banks within Ireland be safe.


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## Lightning (2 Feb 2011)

Happy Girl said:


> In the above scenario would deposit in non Irish banks within Ireland be safe.


 
They would be safer. Offshore deposits would be a lot safer.


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## Happy Girl (2 Feb 2011)

CiaranT said:


> They would be safer. Offshore deposits would be a lot safer.


 
Grateful if you could explain what would make it safer to have deposits offshore rather than in non Irish banks within Ireland in such a situation? Many thanks.


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## farmerette (2 Feb 2011)

Happy Girl said:


> Grateful if you could explain what would make it safer to have deposits offshore rather than in non Irish banks within Ireland in such a situation? Many thanks.


 
if things got bad enough , the goverment could freeze accounts registered in this state , regardless of whether this bank was foreign owned , that is a doomsday scenario however 

a more likely scenario ( although still unlikely ) is in the event of ireland withdrawing from the euro , all savings held in this state would adopt the value of our new currency


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## Happy Girl (2 Feb 2011)

farmerette said:


> if things got bad enough , the goverment could freeze accounts registered in this state , regardless of whether this bank was foreign owned , that is a doomsday scenario however
> 
> a more likely scenario ( although still unlikely ) is in the event of ireland withdrawing from the euro , all savings held in this state would adopt the value of our new currency


 
I understand what you are saying farmerette but in the situation where (a) Irish banks were to default on depositors or
(b) The government were to default & all depositers were forced to pay 30c from each euro on deposit to the govt.

Surely neither (a) nor (b) above should impact on any account held in a non Irish bank within the State. I understand the possibility of the account being frozen but I cannot see how the money could be "taken". My understanding that the only disadvantage of holding an account with a non Irish bank in Ireland over an offshore account would only count in the event of Ireland leaving the euro & all saving within the State (either Irish or non Irish banks) being converted to the "Punt Nua".


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## Jim2007 (2 Feb 2011)

farmerette said:


> a more likely scenario ( although still unlikely ) is in the event of ireland withdrawing from the euro , all savings held in this state would adopt the value of our new currency



A rather simplistic view I would suggest!  In the unlikely event of such a thing happening, I would suggest that you can also expect other Euro countries such as Germany taking steps to protect their currency by requiring all non resident deposits in their banks be converted as well, otherwise the flight of capital we hear about would a major impact on their currency.

Jim.


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## damson (2 Feb 2011)

Jim2007 said:


> > Originally Posted by *farmerette*
> > _a more likely scenario ( although still unlikely ) is in the event of ireland withdrawing from the euro , all savings held in this state would adopt the value of our new currency_
> 
> 
> ...


You think that if Ireland withdraws from the euro, a bank in Germany would seek to identify all accounts with Irish-resident depositors, and selectively convert them to an punt nua - even though the German currency remains the euro? Or am I misinterpreting you?
I don't see how that would work. Once the money's in a euro account in the German bank, why would it make a difference to them what the account holder's home currency is doing? Surely when the money was lodged the Irish bank would have settled with the German bank in whatever currency and rate prevailed at the time, and the Irish resident's euros in the German bank are now no different from euros deposited by a German resident?


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## farmerette (3 Feb 2011)

damson said:


> You think that if Ireland withdraws from the euro, a bank in Germany would seek to identify all accounts with Irish-resident depositors, and selectively convert them to an punt nua - even though the German currency remains the euro? Or am I misinterpreting you?
> I don't see how that would work. Once the money's in a euro account in the German bank, why would it make a difference to them what the account holder's home currency is doing? Surely when the money was lodged the Irish bank would have settled with the German bank in whatever currency and rate prevailed at the time, and the Irish resident's euros in the German bank are now no different from euros deposited by a German resident?


 

yes , you are misinterpretating me , my point about people moving thier savings to banks outside the state was meant to illustrate the possibility of accounts held in this state adopting a new currency 

some other posters seem to think that in the event of a euro exit for ireland , countrys like germany would refuse to recognise irish deposit holders (  who had accounts in german banks ) and would duly convert those euro funds to punt nua , its an interesting theory , if people knew that was going to happen , i suspect most would simply stick all thier savings in the likes lf rabbo direct in ireland , while your money would convert to punt nua , at least it would be safe , unlike in bank of ireland or aib


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## damson (3 Feb 2011)

Hi farmerette,

Sorry - I wasn't clear in my previous post - I was trying to clarify what *Jim2007* had said, not you. 

I understand your original point, but it seemed to me from Jim2007's response to you that he feels Irish deposits in German banks mightn't be any safer from an Irish currency change than Irish deposits in Irish banks. That's what I wanted to clarify, because I wouldn't have thought it likely.


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## farmerette (3 Feb 2011)

damson said:


> Hi farmerette,
> 
> Sorry - I wasn't clear in my previous post - I was trying to clarify what *Jim2007* had said, not you.
> 
> I understand your original point, but it seemed to me from Jim2007's response to you that he feels Irish deposits in German banks mightn't be any safer from an Irish currency change than Irish deposits in Irish banks. That's what I wanted to clarify, because I wouldn't have thought it likely.


 
it seems questionable to me that the german state would have the right to discriminate against foreign deposit holders in german banks


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## Gervan (3 Feb 2011)

I can see now why some people are keeping cash in a safe at home! If Ireland does move to another currency, we should be able to convert home-saved-euro at advantageous rates into nua punta, so as to have cash for daily life. The banks couldn't say "this is Irish euro, not German euro, so we'll give you a lower rate".


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## Gervan (3 Feb 2011)

Exactly. A quick trip abroad, change the euro in France, and return with nua punta x 3.


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## dandy (5 Feb 2011)

Hi all, just wondering what kind off timeframe are we talking about if as most people here seem to think is inevitable Ireland will default, surely the bailout money should get us through this year at least.


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## Lightning (5 Feb 2011)

dandy said:


> Hi all, just wondering what kind off timeframe are we talking about if as most people here seem to think is inevitable Ireland will default, surely the bailout money should get us through this year at least.



The Economist said they think it will happen in 2013.


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## Jim2007 (5 Feb 2011)

damson said:


> I understand your original point, but it seemed to me from Jim2007's response to you that he feels Irish deposits in German banks mightn't be any safer from an Irish currency change than Irish deposits in Irish banks. That's what I wanted to clarify, because I wouldn't have thought it likely.





farmerette said:


> it seems questionable to me that the german state would have the right to discriminate against foreign deposit holders in german banks





Gervan said:


> I can see now why some people are keeping cash in a safe at home! If Ireland does move to another currency, we should be able to convert home-saved-euro at advantageous rates into nua punta, so as to have cash for daily life. The banks couldn't say "this is Irish euro, not German euro, so we'll give you a lower rate".



The thing to remember is that there is no mechanism for dealing with a country trying to exit the Euro, it was always seen as a one way ticket and everything was organised on that basis.

The idea of a country leaving the Euro, for whatever reason would have a major impact on the currency itself and on those remaining in it, so we should be surprised if they make it difficult for us to do so.

In any breakup the flight of capital will have to addressed, otherwise the whole exercise would be pointless!  So from a practical point of view, my guess would be that it will something along the lines of deposits in Irish banks plus non resident accounts....

Jim.


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