UK Banks Weaker Than Ever, No Deposit Insurance And A New Industry Scandal Emerges

20th December 2016 / United Kingdom

By Graham Vanbergen – Back in early 2015, the Bank of England cut by £10,000 the amount of a saver’s money that would be protected if a bank went bust in Britain, because, as ex-Chancellor George Osborne said “of the slump in the euro over the past five years.” Osborne’s stated rationale was that this would bring into line the €100,000 deposit protection within the EU. On that basis, the decision irrational as currency changes regularly occur. Indeed, in 2012 it wasn’t far off what it is today. And today, that same £75,000 is the equivalent of €89,250 euros. I don’t hear the Bank of England rushing to protect depositors for the reverse of Sterling’s currency fortunes, do you?

What you may not know is what George Osborne was really thinking. As the last crisis unfolded in 2008, Royal Bank of Scotland and Lloyd’s TSB were, by assets, ranked first and fourth in the country. Between them, before the crisis, they held 26% of the UK savings-account market (In the UK, the savings market of individuals and trusts is worth around £990billion).

How is it that private deposits did not evaporate during these great financial calamities? Part of the answer, perhaps, lies in the deposit insurance safety-net. In principle, if depositors know that their money is safe and guaranteed, they are less likely to cause a ‘bank run’ by rushing to withdraw their cash when an individual institution’s fiscal strength is called into question.

For a description of this scheme we turn to historyandpolicy.org“‘Deposit insurance’ is a term applied to guarantees made by government institutions to individuals making private bank deposits. The term is misleading, since the nature of the guarantee does not meet the criteria, of genuine insurance. In Britain, FSCS ‘insures’ bank deposits made by private individuals and some small businesses to a maximum of £85,000 per depositor, (since reduced to £75,000) per UK authorised deposit-taker (ironically, the limit was increased from £50,000 late in 2010 to satisfy an increased European Union minimum). The compensation payments which the FSCS makes constitute contingent capital, since they replace actual losses. However, the system is not insurance. If it were, the depositors would have to pay, in advance, a premium to the FSCS which was calculated based on a probabilistic determination of the probable amount of the total claims arising. This is not possible, because the likelihood of default is an uncertainty.”

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After bailing out the banks in the UK at a taxpayer cost that reached £1.16 trillion at its height, George Osborne was looking at ways to save the government from financial collapse if they had to bail-out depositor losses in addition to savings the banks if a separate event occurred after 2010.

Unbeknown to almost everyone due to a complete news blackout of the story we find that Osborne was part of the architecture that agreed a Joint paper issued by the US Federal Deposit Scheme and the Bank of England dated 10th December 2012 which included the words; “deposit schemes may have to contribute to the recapitalisation of a failed bank”.

The paper – signed, sealed and delivered makes no ambiguous statement about future bank losses.

This 2012 paper puts in place procedures in the event of the failure of a systemically important bank. It clearly states that depositors are to be protected – that is, until options have ceased to exist. Next time, the state will be last in line, not first. Depositor bail-in schemes are now a reality as truepublica reported last year.

In the meantime, far from recovering, banks in the UK present an ever greater risk as they did in 2008. RBS not only got bailed out by nearly £50billion, it lost a further £50billion since and has cost the taxpayer in share value about another £50billion.

Just in case you had become desensitised about a few billion here and there, I’d like to add perspective. If you count a number every second it will take you 11 days to reach a million. Do the same for a billion and it will take you nearly 33 years or in the case of RBS losses to date – 4,950 years.

You would think that the government would legislate to protect the public, the government and its institutions from a rampant out-of-control banking system.

The Independent Commission on Banking at the height of the crisis recommended wholesale reforms of Britain’s banking system – with the big banks’ high street operations to be ring-fenced.

And so they did. This from Gov.UK website: The final piece of the biggest reforms to the UK banking sector in a generation came into force today (Thursday 5 March 2015), delivering a key part of the government’s long term economic plan. The Banking Reform Act implements the recommendations of the Independent Commission on Banking (ICB), set up by the government in 2010 under the chairmanship of Sir John Vickers to consider structural reform of the banking sector. The government’s reforms are based on almost 5 years of consultation on the future of the UK’s financial sector and represents the biggest ever overhaul of Britain’s banking system.

Except, they didn’t. After criticism from the Parliamentary Commission on Banking Standards, a panel of MPs and peers led by Andrew Tyrie, that plans to ring-fence the banks “fell well short of what is required.” In other words, the legislation did not ‘ring-fence’ retails operations away from their ‘investment’ operations.

So here we are in 2016 after all that reforming and we find that almost all the banks barely reached the lowest bar of the latest so-called bank stress test, with RBS failing it completely. The whole scenario of testing the banks was describes by Forbes as: “Bank of England’s Bank Stress Tests Worse Than Useless – They’re Dangerous.”

A study by the Adam Smith Institute said the Bank’s stress tests are like a “ridiculously easy exam with a ludicrously low pass rate”, which disguises the ability of UK banks to cope with an economic blow on the scale of the 2008 financial crisis.

And just as we find the British government failing to properly protect the country and its citizens from these vultures, the average loss reported to police on the latest investment scam is …… all your investment. While countries around the world enact regulation clamping down on the industry in this new scam, the British government continues to sit on its hands.

The Bureau of Investigative Journalism reports: “80% losses guaranteed! Inside the murky world of binary options trading.”

An investment opportunity where you stand an 80% chance of losing everything you put in? Where losing your life savings to unregulated scammers can be par for the course, but the government does nothing.

If it sounds too bad to be true, that’s because it’s been extremely well disguised. In our latest story exploring the murky world of binary options trading, the Bureau reveals the reality of the risks so skilfully hidden by expert salespeople, the principal company behind the global industry, and the official inaction which allows fraudulent operators to go unchecked in the UK.

Sold as a quick and simple investment opportunity promising average returns of up to 90%, thousands of Brits are pouring money into binary options trading, which involves betting on whether the price of certain commodities will rise or fall over a specific time period. But industry data and legal documents seen by the Bureau show more than three quarters of those who sign up lose all their money – and as little as 3% of people make any profit at all.” To read the full story, click here

When will the government do something about the financial services industry going about its business of pillage and plunder?

 

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