Author Topic: FSCS - Is your money really safe in the bank or building society?  (Read 6179 times)

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The Prophet

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We often see in the press and financial institutions that the Financial Services Compensation Scheme protects your savings up to the value of £85,000 for each financial institution. The "protection is free, automatic and usually compensates people within seven days."

That’s the theory. But where does the money come from? Surprisingly according to the FSCS "Plan and Budget 2017/18" , 82% of customers trust in the FSCS. Yet the same document the FSCS states:
"We shall plan and commence "stress-testing" of our payout and funding capability as required by the European Banking Authority. We shall review our contingency plans with the authorities.  We shall re-test our disaster recovery capability. Hardly reassuring to the 77% of consumers that are aware of the FSCS especially as their forecasts for next year “exclude major bank failures"

The FSCS raised £337m from its levy last year. When Bradford and Bingley went belly-up, the FSCS paid depositors £15.65bn.  So it needs to be asked where the billions will come from if another major bank or building society did an RBS or Northern Rock?

Of course HM Government will never let it happen. It will pitch in and fund the FSCS at the end of the day. But where is the money going to come from?  Apparently, as we are forever being told, there is a huge budget deficit, and a near £2trn national debt. No money to properly fund the NHS. No money to provide adequate care for the elderly. 
So where is the money coming from to fund the payments for deposits in failed banks or other financial institutions?

Currently, my thinking is that sovereign governments around the world are hoping (and praying) they their country's broken banks can refund themselves by profiting from their investment trading activities and from charging interest to their customers. 

But in the meantime another financial crisis remains a distinct possibility. A possibility no one is talking about.  What if Trump starts a war? What if interest rates are raised to combat out of control inflation? How many homes would be repossessed and sold for less than their loan value? It’ll be RBS Northern Rock (2) only this time worse.

So the only option to avoid rioting on the streets will be to have the government 'finding' trillions to fund the deposits of trusting savers whose banks have failed.
Where is this money going to come from?
The government will print it, meaning overnight, people’s savings repaid by the FSCS will be all but worthless in real value.

You don't need to be an economist or mathematician to realise that the sums just don't add up. But whether people realise though is another matter entirely.
Perhaps you really can fool all of the people all of the time!