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How Safe Is Your Money? Even the Most Confident Consumers Cannot Help but Worry As the Banking Crisis Deepens

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How Safe Is Your Money? Even the Most Confident Consumers Cannot Help but Worry As the Banking Crisis Deepens FINANCE How safe is your money? Even the most confident consumers cannot help but worry as the banking crisis deepens. However, before you start stuffing your mattress, we take a look at what deposit protections are currently in place. The landscape of the Irish financial would be guaranteed to receive their unprecedented turmoil in financial sector has changed utterly from what it money back, up to that amount. Member markets and a loss of confidence in the was 12 months ago. Anglo Irish Bank has States have the freedom to introduce Irish banking system, the maximum been nationalised, and the country’s two higher thresholds if they so wish, which compensation amount payable was largest institutions, Allied Irish and Bank has happened with Ireland’s Deposit raised to €100,000. of Ireland, are teetering on the edge. The Protection Scheme. The scheme was also extended to calamitous events to unfold in 2008 were include the deposits held by credit union not predicted by the even the gloomiest Deposit Protection Scheme account holders, while certain foreign of forecasters. So, if your bank gets The Deposit Protection Scheme is banks that operate here under EU rules, sucked into the financial abyss, where do designed to provide compensation to and which are regulated in their home you turn to recoup your losses? depositors if a credit institution is forced countries, are not participants of the Irish to go out of business. It covers deposits scheme. These include online banks Compensation schemes held with banks, building societies and Rabodirect and Northern Rock. Deposits Many consumers may not have been credit unions. The Financial Regulator is with these institutions are protected by aware that even prior to the current responsible for administering the their home country’s deposit protection AT A GLANCE financial crisis their bank deposits have scheme. arrangements (see our table for details). always had some degree of protection. Up until recently the maximum level Claiming under the scheme is open to Compensation The EU Deposit Guarantees Scheme of compensation payable for an personal customers, small companies schemes. Directive obliges all Member States to set individual who held a deposit in a bank and businesses (including sole traders), up compensation schemes for depositors that had gone out of business was charities, voluntary organisations, and Deposit Protection in the event of a banking failure. It had €20,000 (the minimum level required by accounts held in trust. There is no Scheme. established a minimum guarantee level EU law). The CAI had been calling since requirement for claimants to be resident Government of €20,000, whereby if a bank became January 2008 for this figure to be in Ireland or be an Irish citizen – if the guarantee. insolvent, depositors throughout the EU increased. However, due to account is held by an institution that is 118 consumer choice MARCH 2009 FINANCE INVESTMENT COMPENSATION Useful contacts It is not just depositors who are protected by a compensation It is important to realise that you cannot claim compensation for Financial Regulator scheme in Ireland. Investors too have recourse if the investment losses arising from bad investment decisions, advice or management company that they have done business with collapses. The Investor’s or for losses caused by a fall in the value of your investment. Neither P.O. Box 9138 Compensation Scheme (ICS) is administered by the Investors can you claim if the investment firm you were dealing with is not a College Green Compensation Company Ltd (ICCL) and covers investment firms, member of the ICCL. Dublin 2 stockbrokers, insurance brokers, banks, building societies, credit You can find out if the firm is a member of the scheme by tel (01) 410 4000 unions, and accountants that provide investment and insurance contacting the ICCL directly. (See Useful contacts) The scheme is email services. If a member of the scheme goes out of business and cannot intended to help private individuals and does not apply to institutions [email protected] return your money then under the ICS you can be paid up to 90% of and professional clients. Nor does it cover the deposit taking business www.financialregulator.ie the value of the funds that you have lost subject to a maximum of of banks, building societies or credit unions – these are covered by the € 20,000 for each investor. Deposit Protection Scheme or the Government guarantee. The Investor Compensation Company Ltd part of the scheme then the account is BANK DEPOSIT SAFETY C/O Central Bank & covered. Joint account holders are each Financial Services FINANCIAL INSTITUTION PROTECTED BY AMOUNT PROTECTED entitled to the maximum amount Authority of Ireland AIB Irish Government Guarantee 100% payable under the scheme. So, for P.O. Box 559 Anglo Irish Bank (state owned) Irish Government Guarantee 100% example, a successful claim on a jointly Dame Street PTSB Irish Government Guarantee 100% held account containing €200,000 will Dublin 2 Bank of Ireland Irish Government Guarantee 100% see each account holder receive €100,000 tel (01) 410 4955 EBS Building Society Irish Government Guarantee 100% compensation. Also, the scheme is email webmiss@ applied per institution so in the event Irish Nationwide Irish Government Guarantee 100% investorcompenstation.ie that two or more banks collapse, an ICS Building Society Irish Government Guarantee 100% www.investor 1 € individual with accounts in each is Bank of Scotland Irish Deposit Protection Scheme 100k max compensation.ie 1 € entitled to compensation of up to First Active Irish Deposit Protection Scheme 100k max 1 € €100,000 per bank. KCB Bank (IIB Bank) Irish Deposit Protection Scheme 100k max Department of Finance Postbank Ireland Irish Government Guarantee 100% Government Buildings Government guarantee Ulster Bank Irish Deposit Protection Scheme 1 €100k max Upper Merrion Street In an effort to stabilise financial markets Pfizer International Irish Deposit Protection Scheme 1 €100k max Dublin 2 and prevent a major banking collapse, Credit Unions Irish Deposit Protection Scheme 1 €100k max 1890 66 10 10 the Government took the unprecedented ACC Bank Irish Deposit Protection Scheme 1 €100k max email webmaster@ step of guaranteeing deposits in the Irish- Danske Bank Danish Government Guarantee 100% finance.irlgov.ie owned banks as well as Postbank. As it National Irish Bank Danish Government Guarantee 100% www.finance.gov.ie currently stands, the guarantee covers Rabodirect Dutch Deposit Protection Scheme 100% of first €100k AIB, Anglo Irish Bank (since taken into Investec UK Financial Services 100% of first £50k Useful website Compensation Scheme State ownership), Permanent TSB, Bank Leeds Building Society UK Financial Services 100% of first £50k www.itsyourmoney.ie of Ireland, EBS Building Society, Irish Compensation Scheme Nationwide and ICS Buiding Society. Northern Rock HM Treasury & Bank of England 100% Ulster Bank, First Active, KBC, National 1 Irish and Bank of Scotland have stated, NOTES: Information correct as at 18 February 2009. Information obtained from the Financial Regulator. This Report by institution was made eligible for protection under the government guarantee by the Minister for Finance but has cc that despite being eligible, they do not elected not to join. Mark Channing wish to join the guarantee scheme. Prior to the move, the only financial institution to be guaranteed by the government was An Post which choice comment continues to retain this status. Other banks may be included under the It has been reported that bank charges are set to spiral as a result of the state guarantee for the financial institutions guarantee later with applications being with increases to credit card rates, current account charges and overdraft interest rates all expected. The expectation is considered by the Minister for Finance that banks, in an effort to improve profit margins which have been hit by bad lending practices, will seek to raise on a case by case basis. overdraft and credit card interest rates as well as current account charges. This is in addition to more than 100 hikes in Estimated to be worth €400 billion, bank charges over the past two years. The net effect is that consumers, who are tax payers, not only have underwritten the state guarantee is currently intended the bad debts held by Irish financial institutions but could also be subjected to higher day-to-day banking costs. to last for two years until 28 September Furthermore, if there are bank takeovers or mergers, these increased charges will come at a time when there is 2010. It is hoped that in the intervening decreased competition in the market for customers. period confidence will have been While any further protection of depositors is welcome there is both a responsibility and an obligation for financial restored to the banking system. At the institutions not to punish the consumer with higher banking charges as a result. The CAI will resist any attempt to time of writing, the governments of increase bank charges – after all, it was not consumers who created the financial crisis in the first place. Given that the Sweden, Greece and Denmark have ordinary tax-payer has now underwritten the business of the Irish-owned banks, it should not be the same tax-payer or followed the Irish move in guaranteeing consumer who must bear the costs of financial institutions restructuring their business. Rather, along with the guarantee bank deposits while other countries are that the banks received there should also be a guarantee for tax-payers of an appropriate dividend when financial considering similar action. conditions improve - and protection for consumers against increases in the cost of banking. FINANCE MARCH 2009 consumer choice 119.
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