The 30k FSA guarantee

Do you mean the Financial Services Compensation Scheme which pays out when banks regulated by the FSA go under?

If yes it's 35k per person per institution. It was changed in October due to the panic over Northern Rock. There was talk of increasing it to

100k, but I don't know of any planned changes.

From:

"From 1 October 2007, FSCS can pay compensation for financial loss of up to £35,000 for deposit claims (which is 100% of the first £35,000) if a deposit-taking firm (such as a bank or building society) is unable to pay back deposits it owes to its members. For claims against deposit-taking firms declared in default before 1 October 2007, the maximum level of compensation is £31,700 (100% of £2,000 and 90% of the next £33,000).

Amounts owed to the failed firm (for example loans, mortgage or credit card debts) are taken into account before any compensation is paid."

From:

It's worth noting, if the above wording is correct, that the compensation would be for "financial loss of up to £35k", which is rather better than saying that the protection extends only to deposits of up to that amount.

So for example if a bank is unable to pay back deposits in full, but is able to pay back deposits in part, the FSCS scheme covers up to £35k of shortfall. This means that if a bank could repay half its deposits, then people who have deposited £70k would still get back all their money.

I don't know how likely it would be for a bank to fail partially like this. It could be that if it's going to fail at all, it will probably not stop short of doing so totally.

And this is also per person - so a joint account has twice the level of protection. (Although in some cases if you have 35k in two different accounts in institutions under the control of the same organization, you only have a total of 35k per person overall.) More details here:

John

I would have thought a partial failure is more likely. I can imagine a situation where a bank (or any other business) doesn't have enough money to cover its debts, but I can't imagine the bank having absolutely nothing at all after all the assets have been sold off. However, I'm no expert.

I still think it is extremely unlikely that the government would allow any bank to collapse completely, but again, I'm no expert.

Does the compensation include accrued interest as well as the capital invested?

Thanks!

The FSA scheme seems to be limited to paying up to 4bn per year. So if several banks went bust (one bank going bust is likely to cause a run on others and then several banks might fail) then the FSA limit would be quickly exhausted. The FSA would then hand over the problem to Gordon ....

Davy

Where is the pot of money the FSA will use to pay people..?

Like many businesses banks may not technically go 'bust' but more likely suffer 'short term liquidity problems'. I guess that could happen if there was a 'run' on any bank. So we are told there is

100billion pds of UK debt which is secured on 300billion pds of property. Liquidating the lot at once might cause some issues. I would expect in extreme circumstances the cash assets would be 'temporarily frozen' so nobody could get their money (or maybe only in v. small amounts).

The problem is that it is getting harder to tell whether the whole system is or is not a pyramid scheme.

It's not hard. It definitely _is_ a Pyramid scam.

M.