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Clare Francis: After a weekend of crisis meetings between government leaders, financial heads and economic advisers in a bid to stave off a financial meltdown, we've seen two more UK banks nationalised today - Royal Bank of Scotland and Halifax Bank of Scotland. We've also seen a pledge by the European Union that no European bank will be allowed to fail.
So is this intervention enough to reassure savers and to restore calm to the market?
Let's see what Kevin Mountford, who's head of banking here at moneysupermarket.com, thinks.
So Kevin are the latest measures we've seen from governments here in the UK and from around the world enough to shore up confidence?
Kevin Mountford: Well, I guess we've seen a number of actions around the globe over the last few weeks and they clearly haven't stemmed the economic meltdown, so we need to hope that this does work because I think it's very much a last resort. But we shouldn't underestimate the scale of this rescue package that's been announced by the government - we now have 4 nationalised banks in the UK, European heads of state have said they will not allow any bank to fail and this will hopefully reassure savers that their money is safe.
Q2: So what's it going to mean, do you think, for savers. Over the last few weeks we've seen loads of savers move their money around to different institutions in the hope... because of fears of instability and the Icelandic crisis last week - is this going to be enough to allay their fears?
Kevin Mountford: I think there are a number of elements that you need to consider. First and foremost, this is meant to give some stability to the banking sector, so the banks will hopefully start to trade between themselves. So that improves the liquidity, but there's clear evidence that they will continue to drive retail inflow - customer savings - and I think that will be the situation for certainly the foreseeable future. I think what the bigger risk is in terms of the marketplace is consolidation, so we're likely to see less brands and less products in the marketplace. The only other thing that's on the horizon is further reductions in Bank base rate as we move into the new year. So all of that makes, I guess, an interesting backdrop in terms of the savings rates.
The second thing to consider is how stable now is the market and how safe are people's deposits? I guess the Icelandic situation caught a lot of people out last week. Regardless of the warnings, people still believed that savings were safe.
Q3: [They were told that they were]
Kevin Mountford: Well, they were and I think to be fair to the government, the money is yet to be repaid but they've been true to their word - not just the £50,000 limit but any UK retail savings are - or should be - recovered. But I think going forward, this proves that the guarantees offered are robust. I wouldn't want to risk having more than £50,000 so I would continue to spread my money, but I think people should be able to sleep a little easier now than possibly they did this time last week.
Q4: Do you anticipate a slow down then in this rush to move savings around?
Kevin Mountford: Only by virtue that there will be less players, but I think the process of consolidation amongst banks still takes time and they got to integrate two or more businesses before they possible consider what they're going to do with the different brands. So, Santander, clearly owner of Abbey need to consider what they're going to do with A&L - they've already stated that they'll have separate licenses, so does that mean they'll operate separate brands, separate products, design and pricing principles? I don't know - only time will tell. So for the foreseeable future, it should continue as we've seen. And only over the last couple of weeks we saw Tesco last week re-price and Egg today have announced an increase in their easy access product as well.
Q5: That's quite interesting isn't it, given that Bank rate was cut by half a percentage point last week - that Egg's coming out with a higher rate suggests that the savings market is still highly competitive?
Kevin Mountford: Yes, and you know, savings rates have been artificially inflated for a while I guess de-coupled from Bank base rate and one half percent reduction won't change that, but I don't know what the pricing elasticity looks like in the market. So when we go into quarter one next year, if there are further reductions - at some stage - there just has to be a knock-on effect, because the cost for the banks is too high.
Q6: What's going to happen - you mentioned about consolidation - we've heard that Britannia's confirmed that it's in talks with The Co-operative about a possible merger. Britannia's obviously one of the biggest Building Societies in the country. If it can't manage on its own any longer, what do you think the hope is for a lot of the really small building societies? Do you think that's the area we're most likely to see consolidation?
Kevin Mountford: I think we started this year with 59 building societies and we've already seen Derbyshire and Cheshire working closely with Nationwide and so there'll be a consolidation there and now Britannia maybe is a surprise because it is a national player. I think there's some regional societies that have their own business models and they're quite niche in the part they play in the market. Primarily these building societies were there to provide savings solutions so that people could save up and then buy their house through mortgages, so they will have been affected just like everybody else. What the building society landscape looks like over the next few months is difficult to say, but I am sure that some of the building societies - the smaller ones in particular - are feeling the pressure and maybe are looking for a helping hand from somewhere.
Q7: One of the reasons for all the bail-outs and the huge interventions we've seen in the last 24 hours was the Icelandic crisis last week and the chaos that the collapse of the banks there had. UK savers - hundreds of thousands had money with Icelandic banks - obviously those with Kaupthing Edge and Heritable Bank have already had their accounts transferred to ING and I believe they've received emails saying their accounts are now open and they can access their money, but the 300,000 or so savers with Icesaver who haven't been rescued in that way, they're still stuck aren't they? Can you update us on where we're at with that compensation process?
Kevin Mountford: There was the latest notice posted on the Financial Services Compensation Scheme site was as at Friday that just said there'd been further talks between the UK Treasury and Iceland and there's been real decisive action there. One minute the Icelandic Banks said 'we won't pay our element to it'; the UK government came out with a statement that said 'ok, we'll cover that but in the meantime we'll seize your assets' and I'm sure there's more political wranglings to take place there, but the latest announcement on the site said that in the next few days - I think it cited 72 hours - they were hoping to have clear communication in terms of the action required by those customers of Icesave. And I think the critical aspect, there's three parts to this: there's the Icelandic Government, compensation scheme and the Treasury and all three of those, in theory, will contribute to the savers recovering their money. And I think the FSCS are trying to establish whether they can manage it as a single point of contact.
Q8: And the other things is that it might be an automatic process mightn't it, in that they're getting a list from Landsbanki on exactly which UK savers have what with the bank, so that the FSCS will contact the savers directly rather than you, the saver, having to put in an individual claim.
Kevin Mountford: That looks to be the likely course of action.
Q9: What about those with offshore accounts because that's a real hot topic on our forums. There's been a lot in the press over the weekend because the people who had money with Landsbanki Guernsey or Kaupthing Isle of Man - it looks as if they're not covered by the UK FSCS - the compensation scheme.
Kevin Mountford: There's no scheme in the Channel Islands. The Isle of Man does have a compensation scheme and that used to be £20,000 and that was recently increased to £50,000, so I guess there's some light at the end of the tunnel for investors there. But it looks quite a poor state of play for those in the Channel Islands and I guess continual lobbying of various regulators will be required to see if there's a change in heart, but the story so far is there is no bail-out plan from the UK government
Q10: Okay, thanks very much Kevin
Kevin Mountford: Thank you
You can read more about this in Clare's article 'What the bank rescue means for you'
