I just spoke to the FSCS (financial services compensation scheme).
They said they got all the relevant data from Icesave, and will be
writing to all depositors in the next 1-2 weeks. A printed statement
from the Icesave website should suffice, but the form that will be
sent will contain more detailed instructions. No clear indication
exists on the timeline, but the operator said around Christmas. Of
course none of this is final yet.
In the meanwhile, the main source of information is
I was expecting that the FSA would reach some sort of financial agreement
with Iceland that would enable the accounts of UK savers to be unfrozen so
that we could either withdraw the cash direct from the accounts - or arrange
ISA transfers to other banks. It's going to be a lot more complicated if
everyone has to complete claim forms and then wait for a cheque - and some
sort of authorisation to place the cheques into new ISAs.
I'm not sure how that would work with people who have fixed deposits
with Icesave. If they just unfroze the accounts some people would
still have money stuck in their Icesave accounts for up to two more
years until the deposit matured. I think I'd prefer to get it out of
the control of the Icelandic banks or government as soon as possible.
Christmas??? In my opinion that's an unacceptable delay for those with
INSTANT ACCESS savings accounts. The British government have frozen
the funds to cover the pay-outs, so they have the money. If they can
find out depositors' names and addresses, then they can find out what
their account balances are and either unfreeze the account or send out
a cheque ASAP.
There was a woman being interviewed on BBC News 24 yesterday evening -
she's just lost her job but has sensibly built up an emergency savings
fund to fall back on. The only problem is that it's in IceSave. How is
she going to pay the mortgage while HM Government is sitting on her
cash? She's not the only one in this situation.
The big banks can go begging to the government and get £50 billion in
a couple of weeks, while the same government is expecting prudent
savers to wait 2-3 months to get their hands on their own money. I
suppose they can just freeze / starve / have their houses repossessed
while we are waiting...
It's about what you should have expected. The European requirements for
deposit guarantees were 20000EUR which expect to be paid within three
HM Government isn't sitting on her cash. HM Government is sitting on
some assets which could possibly be sold to raise cash. But it's quite
possible that HM Government doesn't own those assets - it's frozen them
while negotiations progress - but unless and until there is agreement HM
Government probably can't sell them without court authorization
(probably an EU court).
I don't know how bankruptcy works but probably Icesaves assets should be
sold and distributed to depositors equally - so if say their assets are
worth half the deposits then every depositor would get 50p in the pound
- someone with 1m would get 500K, someone with 6K would get 3K. Then
Iceland should step in to top up anybody who got less than 20KEUR up
to 20KEUR and then the FSCS should step up and top up anybody who got
less than 50K to 50K.
But it might take years to finally cash in all of Icesaves assets. So
FSCS and Iceland will have to agree how much each is going to pay now
based on a best guess of how much will finally be raised from the
assets. They'll have to agree how to balance things up as the assets
start selling etc.
IIRC when BCCI went bust there were still high court battles about who
owed what to whom six years later. (Infact a quick google shows
something happening in the high court in 2006, 15 years after the crash)
And just because the Government has said it will guarantee all retail
depositors doesn't mean that it's easy to pay them off because the
councils, charities etc are still going to want their share of the
liquidation proceeds. At the very least all the creditors are going to
have to agree that HM Government paying off the retail depositors
doesn't mean that those debts are discharged, they've just transferred
from the depositors to the Government (and so to the taxpayer). (The
charities, councils etc would prefer that those retail deposits were
discharged because then there will be fewer creditors sharing out the
But the government is loaning the money to the banks and charging
interest. That's a completely different consideration to the government
giving money away. I would expect that anyone having mortgage payments
difficulties now would get a sympathetic hearing at their bank if they
went along with a printout of their Icesave deposits and said they
couldn't pay until they got the money. It's even possible the bank might
agree to waive the interest for the next few months (or at least assume
that the next three or four payments were made on time even though they
will be late)
God said, "div D = rho, div B = 0, curl E = - @B/@t, curl H = J + @D/@t,"
and there was light.
I don't think they will be working on that basis. When Bradford
&Bingley was in trouble, FSCS immediately borrowed from the government
to underwrite all depositors' accounts transferred to Santander.
Depositors' accounts/money were immediately available to them.
FSCS/government will know how much they get back when the final
reckoning of B&Bs account is done. Any shortfall is recovered by a
levy on all members contributing to the FSCS.
I would expect if they can't transfer Icesave depositors' accounts to
another bank with the same FSCS guarantees, then government will lend
FSCS the money to pay depositors reasonably quickly. Again, some money
will eventually be recovered from Icesave, the Iceland guarantee
scheme, and some from the FSCS levy.
I think recent events has shown the likely inadequacy of the FSCS to
deal with large/multiple bank failures, and all government actions on
depositors accounts (nationalisation, takeovers, and assurances to
Icesave depositors) has been to remedy this and prolong confidence
that depositors money is (so far) safe.
Again it depends on whether the FSCS is, even in these exceptional
circumstances, able to operate as intended. The payments under FSCS
would not normally fall on the government/taxpayer. Even if they did
initially, the FSCS scheme is funded by a levy on the banks
themselves. It is yet to be seen how this operates when the main
contributors to the levy are themselves struggling financially, and
whether they can reimburse the fund in the short or long term.
With regard to pecking order, one financial commentator (unfortunately
I didn't keep the reference), stated that some of the inter-bank loans
to Northern Rock were preference loans which, if true, would have left
the ordinary depositors and FSCS particularly exposed (NR had £20+bn
in ordinary savings deposits and £70+bn in commercial loans). It would
be interesting to know if this is the case and how common that is in
the banking industry.
On Fri, 17 Oct 2008 02:41:04 -0700 (PDT),
I think we might be talking past each other here.
AIUI there are four ways for the Icesave depositors to get their money:
1. Proceeds of liquidation. I understood that creditors are ranked. The
highest ranked creditors got first grab of the pot. If there's any left
then the next ranked etc until the pot is empty. When there is
insufficient to pay off all the creditors of equal rank then they all
get so many pence in the pound.
In particular, this would mean that someone with 1m deposits might get
500K back, someone with 30k would get 15k back and someone with 1k would
get 500 back.
2. Iceland guarantee scheme (for simplicity we'll say 16k) This will top
up anyone from step 1 above who lost money on deposits up to 16k. So the
1k depositor above would get 500, the 30k invester 1k while the 1M
depositor would get nothing. (Or maybe the 1M depositor says they got 8K
back on the first 16K and so are eligible for 8k from the Icelandic
3. FSCS guarantee scheme. This will top up anyone from step 1 above who
lost money on deposits between 16k and 50k. So the 30k depositor would
get 14k back. (Or maybe the 1M depositor will say they've got 17k back
on the 34k from 16k to 50k so they're eligible for 17k from FSCS)
4. Government guarantee. This will make up any and all losses for retail
depositors. (I don't actually know what the definition of a retail
depositor is so if this isn't the correct term then substitute whatever
is correct for the people the government has given a guarantee)
IIUC, the FSCS scheme will not guarantee the funds from step 2. So if
Iceland refuses to pay out for any reason then the 1k depositor will
still get nothing in step 3 and the 30k invester will get 14k back.
I suspect that the real FSCS liability is quite small. Very large
depositors are likely to recover more than 50k from the liquidation
anyway. Most other depositors will be below the Icelandic guarantee.
Other depositors not guaranteed by the government guarantee would rather
see the ones who are guaranteed discharged by the government guarantee
rather than (partially) discharged by the liquidation proceeds. Because
that way there's fewer creditors to share the liquidation proceeds.
There were many, many legal battles when BCCI went under. Things like
whether a mortgage to a director in order to raise funds for his company
could be offset against the company's deposits (IIRC the eventual
conclusion was no.) I see no reason to expect that Icesave will be any
simpler. Imagine, for example, that Icelandic bankruptcy law ranks all
depositors equal while UK law doesn't. How should the liquidation
proceeds be shared?
God said, "div D = rho, div B = 0, curl E = - @B/@t, curl H = J + @D/@t,"
and there was light.
In terms of insolvency law, when you claim under one of the compensation
schemes, what happens is that you assign the debt to them, they pay you the
money and they take your place in the queue for the insolvency pay-out. So
the existence of the compensation scheme does not benefit any of the other
To the extent that any of the compensation schemes don't cover your debt,
you don't assign that bit of it to the compensation scheme, and you have to
wait in line yourself to collect the money from the liquidator. In the
case of IceSave, the Treasury has offered to take the uninsured bit off
you, pay you for it and wait in line for the pay-out.
The Netherlands 'loans' the first E. 20k to Iceland which
agrees to reimburse savers. The funds are distributed by the
central bank. (Deposits from 20k up to 100k were insured in
the Netherlands to begin with.) Anything above 100k is
probably lost as Iceland cannot pay up. (Initially savers
were told they should have read the fine print, and needed
to file individual claims in Iceland for amounts up to 20k,
To my understanding a savings scheme in Belgium similar to
that of Icesave will now be unwind so that saver can withdraw
What it seems to comes down to, is that European countries
now accept part of the blame and end up with most of the bill
for the foreseeable future...