UK Company Business Bank and Savings Account Guaranteed?

By: Nadeem_Walayat

Whilst individual savers continue to adjust to yesterdays announcement by the Prime Minister, Gordon Brown to extend the 100% guarantee to the first £50,000 for individual savers. However this is an apt reminder that the guarantee does NOT extend much of the business sector, the consequences of which are that corporate runs on banks occur as corporate depositors which amount to some £1.2 trillion seek to immediately withdraw funds from potentially failing banks.

At the present time only the nationalised government owned banks offer any sort of SECURITY against default to the corporate saver. Therefore medium and large business up and down the land are at a real risk should a financial institution collapse and NOT be rescued by the Bank of England i.e. along the lines of Lehman's brothers.

Small unincorporated business are covered by £50,000 for BOTH your personal and business accounts with the institution i.e. if you have deposited £50k personal and £50k business with the same bank then only £50k in total is covered. However there is some confusion as to whether small limited companies are covered or not as the FSA Handbook implies that limited companies are NOT covered, however the FSA latest developments page in reference to Bradford and Bingley bust states something different -Important announcement: Bradford & Bingley - 29th Sept 08

Who is protected?

FSCS was set up mainly to assist private individuals, although some smaller businesses are also covered. Larger businesses are generally excluded, although there are some exceptions to this (for example for claims in respect of certain compulsory insurances). Our rules tell us which claims are eligible and form part of the FSA's Handbook of rules and guidance, under Redress, Compensation.

As an indicative guide only, for the purposes of deposit and investment claims, smaller companies are protected. A smaller company must meet two of the following criteria (as set out in section 247 of the Companies Act 1985 or section 382 of the Companies Act 2006 as applicable):

• Turnover: not more than £6.5 million
• Balance sheet total: not more than £3.26 million
• Total number of employees: not more than 50

The above therefore implies that small limited companies are covered.

Extending a guarantee to all savers whether in line with the £50k limit or a full 100% along the lines of Ireland presents its own problems as there would be a loss of confidence in the currency and therefore imply higher interest rates to attract international money flows at a time when the UK government looks set to bust through the 40% government debt ceiling and therefore implies a flood of bond issues as the the earlier article illustrated- Savings Guarantee Raised to £50,000 to Halt Run on UK Banks

At the present time with the banking system in near meltdown, the best option for business depositors is probably to seek to transfer funds to one of the government backed banks or an Irish bank, as there is a potential risk that should a UK bank fail to be rescued by the British government which could ignite the "The Mother of ALL Bank Runs" as corporate depositors including foreign banks withdraw on mass and trigger a collapse of the UK banking system.

By Nadeem Walayat
http://www.marketoracle.co.uk

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Nadeem Walayat has over 20 years experience of trading, analysing and forecasting the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 150 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

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