Deposit Guarantees - Some Missing Figures

Deposit Guarantees - Some Missing Figures

My personal deposit guarantee is this big

We've heard a lot over the last few days about bank deposit guarantees. The FSA is raising its guarantee limit to £50,000, and according to the government that will cover 98% of all personal accounts. Implication - only 2% of accounts are left out, and they all belong to plutocrats who can take care of themselves. So don't worry.

In which case, you may be wondering why Darling is so keen to stress that £5oK is not necessarily a fixed upper limit on the guarantee.

The answer is that while 98% of account numbers are covered by the new £50K limit, only 60% of total deposits are covered. And that's because most accounts have very little cash in them (such as Mrs T's unclosed dormant account with Virgin Money which we keep meaning to close but can't be bothered because it only contains 23p).

Today the FSA published a paper which contains a handy summary of the full picture:

And as we can see, the £50K limit covers 98% of all bank accounts and 97% of all Building Society accounts.

But in terms of deposits, it only covers 60% and 77% respectively.

So why should taxpayers care?

Because at the end of the day, it's pretty well unthinkable that the government would walk away from that 40% of personal bank deposits outside the £50k formal guarantee. And that means taxpayers have to make depositors whole in the event of a bank failure.

Whereas the formal FSA scheme is paid for by the banks themselves via compulsory insurance premia.

Naturally the bankers don't want a higher limit because it increases their costs. But the current crisis has shown us all that in the absence of proper insurance, we taxpayers are always on the line.

And we don't want to be.

PS When is a guarantee not a guarantee? Apparently, when it is a political guarantee. A German Finance Ministry official has "clarified" Angela Merkel's unequivocal guarantee on German bank deposits: "There will be no legislative notification; it's a political declaration. It's a very clear signal that people can have faith in their savings-account, current- account and fixed-term deposits.''Trust me, I'm a politician.