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The Power of the Wave Principle

How to Protect Your Bank Deposits, Savings From Euro-zone Collapse Financial Armageddon

Personal_Finance / UK Banking Dec 03, 2011 - 06:41 AM GMT

By: Nadeem_Walayat

Personal_Finance

Best Financial Markets Analysis ArticleThe Governor of the Bank of England, Mervyn King, woke up form financial paralysis to warn UK Banks to prepare themselves against the risks of a collapse of the Euro-zone by forgoing annual bonus payments (based on fictitious tax payer funded profits) and instead shore up their capital against the wave of defaults and bankruptcies both banking and commercial that would follow a collapse of the Euro-zone.


"The crisis in the euro area is one of solvency and not liquidity

And the interconnectedness of major banks means the banking systems and economies around the world are all affected.

Only the governments directly involved can find a way out of this crisis. But here in the UK we must try to bolster the resilience of the financial system better to withstand the storms that may come in our direction

What we are trying to do is to say where there are opportunities to increase capital and liquidity, take them."

How to Protect Your Bank Deposits from a Collapse of the Eurozone

Whilst I actually rate the risk of actual euro-zone collapse as low (see 28 Nov 2011 - Eurozone Being Swallowed by Expanding Debt Black Holes, Mega Bond Market Profits and Default Booms ), however you really do need to protect your bank deposits because you are not being paid to for this risk as I have covered several times over the past year and more recently at length in Savers Protect Your Deposits From Bankrupting Banks and Quantitative Inflation:

Steps You Need to Take Now !

The following are my updated lists of tasks you need to do to protect your deposits because you are NOT being paid to carry the REAL RISK OF LOSS OF FUNDS ON DEPOSIT!

1. Ensure that you have at least 2 current accounts across banking groups and at least one with a safer bank such as HSBC.

2. Next make a list of all of your deposit / bank accounts, with the amounts on deposit.

3. Now group your accounts by banking sector group (see list here as a guide).

4. If you are anywhere near the £85k limit with any banking group then move those excess funds immediately! and Especially if it is a Eurozone bank

5. Small banks and building societies are at greater risk than larger banks and building societies because the government is the larger banks such as HBOS pose a greater risk to the financial system and economy so the government will be more reluctant to let them fail, but that does not mean they will actually cover deposits beyond £85k in the event of a collapse, so you still need to limit exposure to £85k

6. Consider transferring funds to your spouse so as utilise their compensation limit across banking groups, so you can double your compensation coverage by opening an account for your spouse with each bank.

7. Ensure you have procedures in place so that you can at short notice transfer funds from high risk banks to lower risk banks so as to limit the fallout from any banking system crisis. For instance open an NS&I Direct Saver account NOW (pays 1.75% gross), then use this during an unfolding sovereign debt crisis event to transfer your cash to as this is the safest deposit account available for UK depositors (Max £2mill, Min £1). Again do this now as you may not be able to do so during a debt crisis event due to high demand for the account. This is an imperative - NS&I is the safest bank in the UK, use it for short-term insurance - NOW!

Instant Access Savings Accounts with Lower Risk banks

  • NS&I - 1.75% - Government 100% Guarantee
  • Tesco - 2.90% (includes 1.65% bonus for 12 months)
  • HSBC - 0.75% (includes 0.5% bonus if you do not withdraw in a calendar month)

Higher Risk banks

  • Barclays - 1.25% (includes 0.35% bonus when you do not withdraw in a month).
  • SMILE (Co-op) 0.25%

Extreme High Risk Banks

  • Santander - 3.1% (includes 2.6% bonus for 12 months) - Euro-zone Bank
  • ING Direct - 3% (includes a 2.46% bonus if you do not withdraw in a month) - Euro-zone Bank
  • Halifax Online Saver - 2.8% (includes 2.7% bonus for 12months).

All accounts pay significantly less than current CPI Inflation of 5%.

8. Do not have ANY savings are fixed deposit exposure to banks that do not fall under the UK Financials Services Compensation Scheme.

9. Avoid exposure to Euro-zone banks and at the very least PIIGS banks, that is Greece, Ireland, Spain, Portugal and Italy as these are at the most risk of going bust thus triggering a lengthy process for savers having to wait for compensation. Remember that if Spain comes under pressure following perhaps Ireland and Portugal joining Greece, then the risks posed to the likes of Santander depositors will also significantly rise.

10. Keep enough in cash to cover at least 1 months expenditure, (I keep 2 months worth of cash).

11. Utilise instant transfer accounts between spouses, i.e. if you have accounts with the Halifax then you can instantly transfer funds between one another, therefore during a crisis you can instantly reduce the exposure if one person is above the £85k compensation limit at that time.

What is Probably Likely to Happen IF the Euro-zone Collapses

I expect the UK government would nationalise the bankrupting banks either in part or full as they did with Northern Rock, Lloyds and HBOS, for if depositors in any significant number actually started to lose any of their deposits then that would result in a catastrophic loss of confidence in the UK financial system and spark runs on all banks.

My best minimum advice is to prepare for the worst rather than leave it to chance, because if the government is facing a bank rescue bill that runs in the trillions it may decide that the pain of closing the banking system for a few weeks (Extended Bank Holiday Month) is better than the implications of more than doubling the national debt which would make George Osbourne's £140 billion annual deficit look like peanuts.

A closure of the banking system (Bank Holiday Month) will result in a huge drain on cash in the economy, therefore I suspect the Bank of England has already secretly prepared itself for this eventually by printing a huge quantity of actual bank notes by the container load, ready to ship out as soon as the crisis bites, which would be necessary to cover a closure of the banking system the effect of this would be highly inflationary, because printing actual bank notes is the same as that which happened during Weimar Germany sparking hyperinflation when people ended up buying loafs of bread with Wheel barrows full of worthless currency, this is what would happen, inflation would go through the roof, forget 5% per year, we would be at 5% per month! So a closure of the banking system would probably not be the worst of what could follow as I will elaborate upon in my next in-depth analysis, ensure you are subscribed to my always free newsletter to get this in your email in box.

What is Most Probable

Summarising a series of recent articles (walayatstreet.com), ignore what the ECB and German politicians are publically stating, they WILL print money, they WILL bailout the european banks because the Inflation reasons for not printing money are fundamentally flawed, perhaps it has not dawned on those in charge yet because they are listening to clueless academics. The reason is this, if they fear inflation from QE money printing then what the hell do they think will happen to the Euro-zone inflation rates if the Euro collapses ?

It is all brinkmanship, the Germans want the southern states to cut their budget deficits so they are delaying the inevitable money printing bailout to ensure countries such as Italy suffer enough pain to adopt fiscal responsibility, however the risk is they ms-calculate and the markets blow the euro up, that is the bottom line risk that the Germans have miscalculated and start to print money via the ECB too late.

What am I doing ?

I have pulled my funds out of all euro-zone banks.

I am in the process of exchanging most of my cash for hard assets such as property and already am stocked up to the eyeballs with inflation mega-trend leveraged assets such as commodities, and dividend increasing stocks.

Your wealth protecting analyst.

Source and Comments: http://www.marketoracle.co.uk/Article31904.html

By Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-2011 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 25 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of three ebook's - The Inflation Mega-Trend; The Interest Rate Mega-Trend and The Stocks Stealth Bull Market Update 2011 that can be downloaded for Free.

Stocks Stealth Bull Market Ebook DownloadThe Interest Rate Mega-Trend Ebook DownloadThe Inflation Mega-Trend Ebook Download

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 600 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive

© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Peter
04 Dec 11, 15:32
Low base rates

Nadeem,

Quick question.

Why do you dislike tracker mortgages so much? Surely whatever happens to market interest rates in the UK, the BofE will not increase base rates for some time yet, or am I misunderstanding something?

We will default (I would have thought) by forced currency devaluation rather than forced deflation through much higher base rates leading to massive repossessions. If the central banks first remit is to protect their brethen, why would they wish to inflict further pain by forced repossessions due to higher base rates?

.....or are lower base rates and tracker rates the CALM BEFORE THR STORM?


Jason
04 Dec 11, 16:05
Interest Rates

Nadeem/Shelby,

Please would you explain how Bank of England base rates are determined. Currently, we are witnessing mortgage rates (in general) rising depsite base rates remaining at historic lows. What could force the Bank of England to raise base rates?

Surely, if the conditions remain tough for the economy, base rates will remain low for a very long time, or am I being naive in suggesting this.

Also, why is it that the markets are allowing negative real gilt interest rates to exist in Britain. In the 1970's this did not happen. Market interest rates on 20 year notes went to 15%. Couldn't the Bank of England just keep buying the gilts to avoid yields going up, or am I missing something here?

Would appreciate your thoughts, as I just feel this Government has been tempting fate with telling the world how low our rates are.

Many thanks,

Jason


Shelby Moore
05 Dec 11, 05:41
gold is not a commodity

Nadeem is the best I have found at analyzing the near-term moves in the markets. I am adding my "big picture" analysis. As you can tell by writing two long comments (after promising to stop commenting), I am worried that Nadeem is misunderstanding gold at this juncture. Well at least, I want to read his analysis about it. Thank you Nadeem for all that you do.

Nadeem wrote, "leveraged assets such as commodities". He did not mention gold separately. Understanding gold at this juncture is critical to preserving your networth. See gold to DJIA and house ratio:

http://nowandfutures.com/key_stats.html#ratio

(the chart proves we do have deflation relative to gold, but that is inflation to everyone who doesn't use gold as their unit-of-account)

Historically gold will peak at a ratio near 1 to DJIA, thus we still have about 8 - 10x relative gain in gold before it peaks.

Although it appears from the above linked chart, that gold is within 67% of its relative peak to a median house price, please look at the chart going back to the 1800s. I have a theory. See how the volatility in gold-to-house ratio was much less volatile and much less volatile than the gold-to-DJIA, back when house were not part of "financialization". See how the 1980 volatility in the gold-to-house ratio was much greater and got closer to the extreme in the gold-to-DJIA. Well remember the level of the USA 1980s S&L bailouts? That was a couple $100 billion of peanuts compared to the current global real estate financialization, with a $quadrillion of derivatives of financialization.

Thus my theory is that the median price of a house will be devastated relative to gold going forward.

Gold is not a commodity.

The elite understand that ALL fiat systems end (every case in history of world), and they hold their gold for decades waiting for it. We are now at that juncture.

Understand the oil = gold, strong dollar fiat system:

http://fofoa.blogspot.com/2011/12/unambiguous-wealth.html

http://www.usagold.com/goldtrail/archives/another1.html

http://www.financialsensearchive.com/fsu/editorials/2009/1109.html

Also, the authors above didn't think circa 2000 that silver would perform as an unambiguous store-of-value, but it did outperform gold, because it is a tiny market and doesn't need much monetary interest to drive it up. Here is the reason for the volatility in silver:

http://www.financialsensearchive.com/fsu/editorials/2008/0127.html

My position is we have demographic bankruptcy:

http://www.marketoracle.co.uk/Article31855.html#comment131430

http://www.coolpage.com/commentary/economic/shelby/Understand%20Everything%20Fundamentally.html

The only solution to the demographic bankruptcy is remove the borders.

http://www.financialsensearchive.com/fsu/editorials/2008/0929b.html

But it can't be coordinated without a world government, thus instead:

http://www.financialsensearchive.com/fsu/editorials/2009/1012b.html

The author was prescient:

http://www.financialsensearchive.com/fsu/editorials/2007/0927.html

P.S. besides my infamous silver price prediction in Oct. 2010 (see my articles), I also called the top of the silver price above $20 in 2008 and made the call to sell out of mining stocks in 2008 (this is the forum jasonhommelforum.com/forums).


Nadeem_Walayat
05 Dec 11, 06:45
Mortgages, Rates and Gold

Hi All

MORTGAGES

Your not factoring in market risks, and what happens to the yield curve either by design or accident.

Your basically saying you want to finance long-term debt with short-term borrowings, in my opinion that is a recipe for disaster as the bankrupt banks found out.

RATES

They are rising because market rates are rising because inflation is high.

The bank of england is monetizing debt, this is sowing the seeds for very high inflaiton, which I will cover in my next artice.

GOLD

I think stocks will outperform gold, especially as market rates rise.

Gold is a commodity until it stops being a commodity , which could occur in the lead up to an hyperinflation panic.

Until then it's price trends inline with sentiment of market participants and will be volaile as any other commodity.

Best

NW


Louis
10 Dec 11, 19:15
Cash Safety if Banks Collapse

Nadeem

Can you recommend the safest bank for cash if the banking system was really going to collapse i.e. within a few days.

Thanks

Louis


Nadeem_Walayat
11 Dec 11, 04:41
Banking System Collapse Safety

IF it looked likely that the government was unable to prevent a collapse of the banking system then the safest place for cash would be in bank notes preferablly in a safe rather than under your mattress.


Matt
21 Dec 11, 05:09
Safe Bank

HSBC is about the safest you can get apart from a safe in your house


Richard
23 Jan 12, 03:17
Santander

Dear Nadeem,

My Mother had a bond with Bradford and Bingley which has been taken over by Santander, we went in to try and take the money out and they siad she was unable to do this even though she was willing to give up the interest. They said this was to keep them liquid. Is there anything that can be done?

Many thanks,

Richard


Nadeem_Walayat
23 Jan 12, 03:33
B&B Bond

Hi

Usually you can exit early in exchange for loss of some interest.

Exactly which bond is it i.e. Title and term as well as when did she invest, and I'll do some research.

Best

NW


Richard
25 Jan 12, 10:53
B & B Bond

Hi Nadeem,

The bond is a 1 year reserve bond, it is printed on Alliance and Leicesster pater and was taken out on the 31st August 2011.

Many thanks,

Richard


Nadeem_Walayat
25 Jan 12, 12:58
A&L Bond

Hi

So your saying its a A&L bond not B&B.

I have found a A&L reserve bond that states no withdrawls or early closure, so if its same or similar suggests that there is no get out early option.

In my experience approx 1/2 of bonds do not allow early exit.

Best

NW


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