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Paul Lewis on the financial crisis: Chancellor offers surprise guarantee
More than 300,000 UK savers with Icesave will not lose any money despite the failure of its parent bank, Landsbanki
The dramatic announcement came after a day of uncertainty when it was not even clear if the bank had gone bust and savers were left wondering how much compensation they would get and when it would be paid.
Alistair Darling surprised everyone with a clear guarantee. He said: "Because this is a branch of a foreign bank the first call would be on the Icelandic compensation scheme which, as far as I can see, hasn't got any money in it.
"The British scheme would top that up to £50,000, but people over and above that would lose out, but I have decided in these exceptional circumstances that we will stand behind those depositors so they get their money back."
British savers could have as much as £4.5 billion in Icesave. Most of the bill for repaying that will fall on the banks through their support fort the Financial Services Compensation Scheme. That would leave taxpayers with a bill for the amounts above the £50,000 which the compensation scheme covers. That could be around £1 billion. The Government is taking legal action against the Icelandic government to recover the share of the money that should be paid by the Icelandic government.
The Treasury has also revealed to me that the guarantee extends far wider than Icesave. It also includes Landsbanki's other subsidiary in the UK called Heritable Bank, and also to another Icelandic bank Kaupthing, which has many UK savers in its Kaupthing Edge account.
The significance of this decision goes far beyond the relief to the customers of these Icelandic banks. The Government has already fully protected the savings of people in Northern Rock and Bradford & Bingley when they collapsed. It is now clear that all savings in all bank accounts marketed in the UK are safe and guaranteed by the Government – even though the Chancellor has resisted saying that and has criticised the Irish and other governments for making that commitment themselves.
Earlier this week the protected amount in savings accounts was officially raised from £35,000 to £50,000. But that amount is now an irrelevant fiction. Today's action shows that, at least during the current global banking crisis, all money in current and savings accounts in banks and building societies in the UK is now safe.
* Paul Lewis is the editor of Saga Magazine's Money News section and the presenter of BBC Radio 4's Moneybox. Paul's opinions are his own and for general information only. Always seek independent financial advice.
