Fighting the Government for savers and against inflation (4)

We have new,  again not wholly satisfactory, replies from the Treasury:

“NS&I Index-linked Savings Certificates are also known as Inflation-Beating Savings and are designed to give savers a guaranteed tax-free rate of return, higher than the rate of inflation measured by the Retail Prices Index (RPI), if held for the full certificate term.

Version as submitted by MP:

“To ask Mr Chancellor of the Exchequer, whether savings covered by the terms and limits of the Financial Services Compensation Scheme are protected against (a) ad hoc restrictions of access, (b) bank bail-ins and (c) other forms of expropriation or forced conversion.”

Treasury written answer, from Mr Greg Clark MP (09 July 2013):

“The Financial Services Compensation Scheme (FSCS) provides protection for deposits up to £85,000 per depositor, per authorised institution.”

My comments:

I have tweeted Mr Clark:

We have seen that savers in Cypriot banks originally faced partial loss of even some of their insured deposits. Now the proposal is to convert some of account amounts above 100k Euro into bank shares, and some of the rest is to be lost or frozen or ineligible to receive interest.

But it doesn’t stop at Cyprus. A Russian journalist, Valentin Katasonov, sees this as a global trend towards “Open Bank Reconciliation”, and there is now Europe-wide agreement on making not only bondholders but depositors pay the cost, as Bruno Waterfield reported in the Telegraph.

Here in the UK, the Bank of England has set up a “Special Resolution Unit” for failing banks; the SRU Director Andrew Gracie gave a speech to the British Bankers’ Association (pdf) in September 2012, outlining what might happen and how it would be carried out and the media coverage appropriately managed. Among the public announcements he envisages (pp. 4-5) are:

“any insured depositors would be fully protected – as is always the case; and [...] the final extent of creditor write-downs, and rates of conversion to equity.”

Now, an ideas speech to bankers is not a binding commitment or a statement of official policy. If push comes to shove, can we be absolutely sure that some of our “insured” money won’t be frozen, or compulsorily swapped for shares in a bank of established dubious quality? This is why we need very specific assurances – or to get our money out.

If that last sounds alarmist, note the rumour on John Ward’s blog, that JP Morgan is now sending people into Portugal to help big investors get their cash out of the country ahead of a bank bail-in there. And Barclays is among several banks recently downgraded by S&P.

The issues may soon turn out to be far more than merely theoretical.

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