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Monday 26 January 2009

Here comes another "run" on a bank

The Mail reports that:
"The Post Office has written to 500,000 account holders telling them their money is no longer covered by the UK savings protection scheme. Instead, they will have to put their trust in the Irish version. But with banks there in as bad a state as our own - and the economy probably worse - is it time to bring your money home?

Two Dublin-based banks - Anglo Irish and Bank of Ireland - have attracted hundreds of thousands of UK depositors in recent years.

At various times, Anglo Irish has offered best-buy fixed-rate bonds. And Bank of Ireland, through its joint venture with the Post Office, has hundreds of thousands of UK account holders, with more than £6billion in cash Isas, bonds and easy-access accounts.

The systems to safeguard these deposits are complex and have changed in recent months. Protection for savers with those two banks now depends solely on the strength of the Irish economy, which is being questioned more than ever before.

...

The problem for savers locked into fixed-rate deals with the Post Office or Anglo Irish is especially acute. They must weigh up any risk of losing their money against the higher returns they may enjoy and which they would lose if they pulled out their money and put it into a UK bank. But what would happen to small savers if the Irish government failed to keep its banks afloat?

The scary answer is that nobody knows.

The FSCS and the Financial Services Authority say that legally they can take no responsibility in cases where banks are not part of the UK scheme. Commentators say it is possible - though by no means certain - that the European Central Bank would help because Ireland is in the eurozone.

But that would not necessarily mean UK deposits were secure. Equally, the UK Government might decide to step in and assist UK depositors, as it did partially in the case of Icelandic banks, but there is no guarantee of that."


Could this lead to a "run" on one of these banks?

The answer is probably not, but it is yet another nail in the coffin of confidence in the World banking system.

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