Should I reinvest with Northern Rock?

Just looking at this page again. If you read the section on compensation limits for the Investor Compensation Scheme, it wouldn't exactly fill you with confidence for the Deposit Protection Scheme. No mention of each individual institution here either.

There are limits to the amount of money you can claim, so if you have a large investment you may not be fully protected with this scheme. The ICCL can pay up to 90% of the amount you lost, subject to a maximum of €20,000 for each investor.

For example, if your investment loss was €10,000, you would be entitled to compensation of €9,000 or 90 per cent of the amount lost. If you invested €30,000, you would receive the maximum compensation of €20,000, even though that is just 67 per cent of your loss.

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You could always kept a safe under your bed filled with euros (or even gold!)

Banking was, is and always will be based on trust and if trust goes out the window, then a safe under the bed it is. It is up to each and all to decide on how much trust they accord to Bank of Ireland, Allied Irish, etc etc Unfortunately, the modern economy would not function well, if at all, if no one trusted the banking system and we would be reduced to a cash economy and bartering. In this case, no one could buy a home, start a business, purchase a car, ...

That really isn't the issue here. It's about how miserable our deposit protection scheme is compared to others. It's not unreasonable to criticise it or make people aware just how inadequate it is. If an Irish bank did get into trouble or go bust, the inadequacies in the deposit protection scheme could fuel panic and cause a run to spread. The UK authorities recognise this and have amended the scheme to cover 100% up to £35,000 plus new legislation next year to make the compensation payable within days not months. I guess it's going to take Irish depositors to lose money (very unlikely, but not impossible) before the scheme is improved here.

I think it is the point - if all the deposits of all depositors are guaranteed by the state, then obviously the banking system would be completely run by get rich quick merchants.

If no deposits were guaranteed, then obviously people would be very carefull whom they deposited their cash with and there would be a clear risk(perceived risk?)/reward structure in interest rates

Instead, we argue over what is a "reasonable" level of protection to afford to retail investors. I'm not sure that setting this amount above what it already is would bring any more benefits. It MIGHT have avoided a run such as N. Rock but at a cost of inefficent and un-economic banking à la N. Rock where the management obviously (with hindsight) overlooked proper risk management and the FSA/Bank of England failed in the duty of oversight and control.

Hi guys,

so correct me if I'm wrong but Postbank and Rabo seem the most secure places to keep the savings or am I wrong?

jpd said:

I think it is the point - if all the deposits of all depositors are guaranteed by the state, then obviously the banking system would be completely run by get rich quick merchants.

If no deposits were guaranteed, then obviously people would be very carefull whom they deposited their cash with and there would be a clear risk(perceived risk?)/reward structure in interest rates

Instead, we argue over what is a "reasonable" level of protection to afford to retail investors. I'm not sure that setting this amount above what it already is would bring any more benefits. It MIGHT have avoided a run such as N. Rock but at a cost of inefficent and un-economic banking à la N. Rock where the management obviously (with hindsight) overlooked proper risk management and the FSA/Bank of England failed in the duty of oversight and control.

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So you're extending this moral hazard idea to all ordinary retail depositors. If a bank goes bust and pensioners lose a large chunk of their life savings then tough, they should have checked out all the ratings for the bank provided by the different agencies, conducted detailed research into the bank's business model and management perhaps. We're not talking about a blanket guarantee for all deposits here. No one is arguing for limitless protection of all deposits by the state. But €20,000 is not a large sum for ordinary depositors today, particularly the older generation who tend to keep a large proportion of their wealth on deposit.

You're not going to get a banking system 'completely run by get rich quick merchants' by having a system of deposit protection here equivalent to the UK scheme. Businesses, institutions and very wealthy individuals with very large amounts on deposit will still have to exercise care in where they place their funds.

Godfather said:

Hi guys,

so correct me if I'm wrong but Postbank and Rabo seem the most secure places to keep the savings or am I wrong?

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Godfather, I don't want to provoke alarm or make people anxious about their savings with this discussion. I don't think there's any reason for people to make sudden decisions about where they place their savings. But for someone who is concerned about this, it might provide peace of mind to spread their deposits among different banks that are covered by different deposit protection schemes. Postbank and Rabo do look like good options for someone for whom security is paramount. NR has actually the best guarantee at the moment but I appreciate for some people that's not something they'd feel comfortable with after their recent experience.

Nemesis said:

If a bank goes bust and pensioners lose a large chunk of their life savings then tough, they should have checked out all the ratings for the bank provided by the different agencies, conducted detailed research into the bank's business model and management perhaps.

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Hi Nemesis, sorry I'm a nervous saver I admit it... One last question pls: do you know with which agencies I could check the banks ratings for free please?

Godfather said:

Hi Nemesis, sorry I'm a nervous saver I admit it... One last question pls: do you know with which agencies I could check the banks ratings for free please?

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Moodys, S&P and Fitch will all provide ratings for free but you won't get access to detailed research and to be honest it won't tell you much. All the Irish banks are highly rated and you need to understand the rating methodology or else a rating of Aa3 or P-1 will mean nothing to you. Try www.standardandpoors.com (not sure if they will have anything)

I really wouldn't be having sleepless nights about your savings in Irish banks if I was you

Sunny said:

I really wouldn't be having sleepless nights about your savings in Irish banks if I was you

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Thank you v. much Sunny!!!