Monday, 25 March 2013

Rescuing Cyprus savers in UK

Sorry to labour this point, but we could be faced with a situation shortly where the Treasury has to decide whether to rescue customers who have accounts at UK offices of Cyprus banks.

13,000 customers of the UK branch of Cyprus Popular Bank, also known as Laiki Bank, are wondering what will happen if their savings are devastated.

Their deposits are guaranteed by the Cyprus government up to 100,000 euros, or just over £85,000, so they'll be worrying about how reliable the guarantee is.

The biggest question, though is over funds in excess of £85,000, because Laiki customers in Cyprus stand to lose all or some of that.

50,000 customers of the Bank of Cyprus in the UK are in a slightly better position, because the first £85,000 of their deposits is guaranteed by the UK Financial Services Compensation Scheme.

Yet they too will be worried about their funds above the guaranteed level, despite assurances today from the Bank of Cyprus that all UK deposits are safe.

So if these Cyprus banks fail to pay back all UK deposits, will the Treasury step in - as it has before? We don't know yet.

In the autumn of 2008 the then Chancellor, Alastair Darling, guaranteed the full savings of people who had trusted their money to Icesave, part of the Icelandic bank, Landsbanki, which had gone belly up.

230,000 savers were reassured that their funds, adding up to £3.5bn, were safe. The government froze Landsbanki assets in the UK.

And when a smaller bank, London Scottish, bit the dust in December 2008, the Treasury stepped in to make sure no one lost out "to protect the interests of retail depositors and wider financial stability".

600 out of 10,000 customers had savings above £50,000, which was the deposit guarantee limit at the time. They had their money returned regardless.

Will today's Chancellor do the same for Laiki's UK savers, if they become Laiki victims?

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