Three voices in the wilderness
What do the Law Society, the European Central Bank and Neil Jeffares have in common? We alone it seems have raised our voices to point out that bank depositors should rank ahead of bondholders when banks go bust. To us it is blindingly obvious that you cannot have an effective banking system if individuals and companies cannot conduct transactions for more than £85,000 without taking excessive, unremunerated risk (which no bank is willing to take, as they all insist on security for interbank exposure).
Now it seems (Financial Times, “EU set to back bank depositors”, 15 May) Wolfgang Schäuble has agreed with us.
Where is George Osborne? Continuing to pursue the wholly outrageous provisions for depositor preference included in clause 9 of the Financial Services (Banking Reform) Bill, which not only protect the banks against the depositors but which once again will put Britain in conflict with Europe, pointlessly.
For the background on all this, you can read my posts on Is your money safer under the mattress?, Depositors are not investors, Labour and the City as well as the memoranda submitted to Parliament by the Law Society and by me.
Assuming this insanity prevails, where will that leave the UK? British banks will take deposits over £85,000 on effectively subordinated terms, ensuring that the depositor will probably recover nothing on liquidation, while depositors with European banks (including their London branches) will have a far better prospect of recovery. It isn’t difficult to see what this will do to the prospects for British banking.
Two more difficult questions do arise. Why has our government behaved so wrong-headedly on this? And where were the checks on balances on this insane policy? Parliamentary scrutiny has been ineffective. The opposition have failed to point out how counterproductive these measures would be. But most of all the press have failed to provide any coverage of these extremely important issues.