What happen with my money if my Bank goes bust?

What happen with my money if my Bank goes bust?
Friday, September 19, 2008 @ 12:53 PM

A solid financial system

What will happen with my savings if the Bank goes bust?

The Spanish National Financial system is solid and has a wide net of organisms for the control and supervision of the Bank activity in order to put a stop, from the roots, to any problem that may arise.

Countries that are more exposed to the contagion of the financial crisis derived from the subprime mortgage crisis are those who have over valuated property prices, or companies or individuals who are excessively in debt.

Old crisis such as Argentinean "corralito" and the bankrupt of Banesto in 1993 contributed for our bank system to become stronger. This system has now enough means to detect a financial problem and put a solution so consumers will not be affected. In Spain, there are several National organisms to look for the security of users of Financial Institutions Funds for Bank Deposits Guarantee

They guarantee Bank clients of the refund of Bank deposits and financial assets to a specific limit. This institution also reinforce  the solvency and operating status of a Bank in a difficult situation in order to defend the interests of both the depositors and the Fund itself.

The Spanish Guaranteeing system is made of three different institutions:

1.- Fund for the guaranteeing of Money deposits in Banks, (Fondo de Garantía de Depósitos en Establecimientos Bancarios (FGDEB),

2.- Fund for the guaranteeing of Money deposits in Savings Banks ( Fondo de Garantía de Depósitos en Cajas de Ahorros (FGDCA) y

3. - Fund for the guaranteeing of Money Deposits in Credit Cooperatives. Fondo de Garantía de Depósitos en Cooperativas de Crédito (FGDCC).

 Every Bank, Saving Bank and Credit cooperative needs to obligatorily be a member of its respective Fund

 Foreign Banks operating in Spain, when they are not members of the European Union or when their deposits are not guaranteed in the origin country need to be a member of the FGDEB.

The National Gazette ( Boletin Oficial del Estado) publishes those institutions that are members of each of the said funds. These funds have their own patrimony coming from annual contributions of the member institutions. These contributions are established by Law. Exceptionally some extraordinary contributions can be asked and even the Bank of Spain can be asked to make contributions to the fund.     

Offered guarantees

* How much is paid?Money deposits: 20.000 € per person or company

 

Financial assets deposits: 20.000 € per person or company

* When are they paid?

In two different occasions:

a) If a Bank/Saving Bank/ Credit cooperative is declared bankrupt

b) If a Bank cannot paid back deposits which are due for payment and if the Bank of Spain consider the Bank to be unable to pay them in an immediate timeframe.

Financial experts recommend savings to be diversified within several banks and institutions and place in each one that maximum guaranteed amount (20.000€). It is also advisable to have several holders by each account.

Payments by the Guarantee Funds needs to be made within three months, even though, under specific circumstances, these payments can be postponed if the Bank of Spain decides so. If a client has a deposit higher than the guaranteed limit, he will have to intervene in the judicial creditor’s meeting procedure of the Bank for the refunding of his money.

Investment funds, pension plans, insurances... are also guaranteed by other organisms such as:

· Comisión Nacional del Mercado de Valores (CNMV) for investment funds

· Dirección General de Seguros y Planes de Pensiones ( DGSFP: an office of the Treasure National department) for the control and safety of Pension Plans and Insurances.

Countries of the European Union will share expenses in the case of bankruptcy of a bank that operates in several member countries. This is out of the Slovenia Agreement signed by them this year.  

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I originally asked the question in another thread, and Maria kindly replied when I sent her a PM with the question, which she then started this thread with.
Most of us have heard about the Savings Protection Scheme in the UK which guarantees savers deposits up to £35,000, and recently it has been debated as to whether this should be increased. 
So it comes as a bit of a surprise that the Spanish equivalent, Fondo de Garantía de Depósitos , only guarantees up to €20,000 per saver, per institution. 
Just to test their knowledge, I asked the staff at my bank this morning how much protection savers have with their bank. They hadn't got a clue.
They actually didn't understand the question at first, but when I finally got through to them that I was asking what would happen if a bank went bust, they laughed at me, and said, in effect, it would never happen here.
Yes, well, that's what employees at Lehman Brothers thought last weekend. 
Definition of optimism? An investment banker ironing 5 shirts a on a Sunday evening!

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I fully agree with you Roberto. No country who played the game  is exempt.
You may like to read on the agreement by our securities supervisors made yesterday and that will come into force tomorrow 24th of September:

www.eyeonspain.com/blogs/costaluz/572/agreement-on-naked-short-selling-by-spanish-cnmv.aspx

Best regards,

Maria L. de Castro

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I chatted with the manager of my bank this morning. He assured me that his bank, BBVA, and Santander, are the strongest of the Spanish banks. Obviously he doesn't want me to take my money elsewhere, but unfortunately BBVA savings rates are not very competitive. There are all sorts of offers at the moment, over 6% from some "cajas". He suggested that the banks offering the higher rates are doing so because they are short of cash and need to attract deposits, whereas BBVA are healthy so do not need to be competitive - rather like Lloyds then? 
Maybe. But then again, you could argue that the cash will naturally flow to the institutions with the best offers, thereby making them the best funded - like Northern Rock.
So what to do? How safe are any Spanish banks? Can anyone really know? A week or so ago, nobody thought HBOS could ever get into trouble. Should I spread the risk around? Should I go for the best rate? Should I stay loyal to what appears to be one of the strongest banks (and that admittedly has been good to me in the past), even at the expense of a bit of interest on my savings?
Maria, I have tried searching for, with no success, some kind of risk rating for Spanish banks (such as comparing Credit Default Swap ratings - don't know what that is in Spanish or if it exists even!) Do you know of any websites that might help?

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Roberto,

Why not buy gold?  I mean actually buy it in a shop?  They used to sell krugerrands, and in Saudi, you could buy 1kg 99.99999% gold ingots that were pendants for neckchains!  I kid you not! 

If not - I've got a huge house for sale - 150,000€ to you.

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That's what TJ recommended months ago.
I have my bling bling drug dealers bracelet that I bought years ago in Dubai - all I need now is the Hummer - oh, and an oil well to fuel it of course.

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Robert - I'd spread your money between at least two banks that way should one go under you have immediate access to funds.  Your 20k euros may be guaranteed but it could be some time before you will receive a cheque in payment.

In UK all banks pay into a deposit protection scheme which is used to pay out when a bank ceases trading.  I've copied a couple of paragraphs from Maria's first posting on this thread as it seems Spain operates the same system, they call it the Guarantee Fund.  

It's important that you make sure that if you do have several bank accounts that they are not connected to the same organisation.  Watch out for mergers etc as you will not be covered when you exceed the guaranteed 20k for each account holder.  They may have separate names but they will be covered under the parent company and you could loose 20k. 

Financial experts recommend savings to be diversified within several banks and institutions and place in each one that maximum guaranteed amount (20.000€). It is also advisable to have several holders by each account.

Payments by the Guarantee Funds needs to be made within three months, even though, under specific circumstances, these payments can be postponed if the Bank of Spain decides so. If a client has a deposit higher than the guaranteed limit, he will have to intervene in the judicial creditor’s meeting procedure of the Bank for the refunding of his money.

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EU law states a minimum protection of €20,000 and it must be paid out within 3 months of a bank going bust. But of course, so far, it has never been put to the test, so who knows?
The UK chooses to offer savers £35,000, and there's been talk of this being raised to £50,000 by the autumn.
The Irish govt. has just announced that they are raising the level of guaranteed savings to €100,000 (almost £80,000) so if you save with Allied-Irish Bank, Anglo-Irish Bank or Bank of Ireland, and strangely, the UK Post Office, whose savings scheme is operated by the Bank Of Ireland, you will be protected to a higher level than any other EU savers.
Doesn't help those of us with our money here in Spain much though.
My bank manager told me today that BBVA have been rated 6th in the EU, and 12th in the world, in a list of banks and their relative strength. (HSBC top the Eyropean ratings). He also gave me a free pen and a baseball cap (I've lost count of how many he's given me now), so I agreed to keep my money there a bit longer!

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I hope he's not funding Basque separatists with it!

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SPAIN INCREASES BANK DEPOSIT GUARANTEES (Click it, it's a link).

Monday, October 6, 2008

Spain said today it would immediately increase bank deposit guarantees to boost confidence in the financial system, after prime minister Jose Luis Rodriguez Zapatero summoned top bankers to a crisis meeting.

"Zapatero informed the heads of the leading banks and savings banks of the measures the government will adopt immediately to increase deposit guarantees to reinforce confidence among citizens, savers and businesses," a statement from the Prim Minister's office said.

The statement gave no financial details, but previously the deposit guarantee level in the euro zone's fourth biggest economy was €20,000 euros, which is the minimum under European Union law, and backed by reserves.

Represented at the two-hour meeting were the eurozone's largest bank Santander, as well as BBVA, Banco Popular and unlisted savings banks La Caixa, Unicaja and Caja Madrid.

Earlier in the day, economy minister Pedro Solbes voiced his frustration at the lack of a coordinated approach among European Union members to solving the global banking crisis.

"If there isn't (an EU agreement) as soon as possible, we will consider our position and if we have to take a decision we will do so," Mr Solbes said, when asked whether Spain would follow the lead of other countries and provide full coverage on deposits.

Pressure is building for governments throughout Europe to provide unlimited coverage of deposits after Germany pledged to do so yesterday, prompting Austria and Denmark to follow suit.

The moves, started by Ireland last week, pose a challenge for the rest of Europe, since banks have become increasingly cross-border and savers transfer funds wherever they think they are safest.

"I would have preferred no member country took decisions unilaterally, which are always negative," Mr Solbes said. "If each country maintains its position, we'll have to look at the impact it's having on Spain."

Strict Bank of Spain reserve and investment regulations have shielded the Spanish banking system from the initial impact of the international financial crisis.

Banks now face liquidity difficulties as the crisis drags on and domestic debt defaults rise following the collapse of a decade-long residential construction and property boom in Spain.

Mr Zapatero will meet with French president Nicolas Sarkozy in Paris on Friday to discuss the international financial crisis, after officials said Spain was annoyed at being left out of a weekend "mini-summit" in France.

Socialist Zapatero's meeting with banking leaders followed a report in Spain's La Vanguardia newspaper that the government was considering buying debt from some Spanish banks to help ease their liquidity problems.

Mr Solbes has said he supports limited public intervention in the financial system when necessary.

Reuters

© 2008 irishtimes.com

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Just heard the Spanish guaranteed deposit scheme is to be raised from €20,000 to €100,000

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As we wait for confirmation of that increase, you might find this interesting reading:

On :

Deposit Guarantee Fund for Banking Establishments (FGDEB).

Deposit Guarantee Fund for Savings Banks (FGDCA).

Deposit Guarentee Fund for Credit Cooperative Banks (FGDCC).

http://www.fgd.es/en/index.html

Let´s keep forward.

Maria

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So yesterday, anyone who had put more than £50,000 into Icesave was worryingly facing the prospect of losing any amount above that. Officially, they can claim about £16,000 from Iceland's deposit guarantee scheme, and the difference from the UK. 
But this morning, Mr.Darling announces that he will guarantee UK Icesave saver's deposits, since Iceland is effectively bankrupt and cannot pay out compensation. The full £50,000, then? No. 100% of deposits, regardless of how much. "Normally I wouldn't do this with a foreign bank, but these are not normal times".
So, does this mean that the new £50,000 limit on savings guaranteed is only figuritive? Can we assume, therefore, that actually 100% of all savings would be compensated, in the event of a British bank going bust?

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