UK Company Business Bank and Savings Account Guaranteed?

Companies / Credit Crisis 2008 Oct 02, 2008 - 05:22 AM GMT

Best Financial Markets Analysis Article 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

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

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.

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Comments

Christine Joyce 13 Oct 08, 14:51	bank guarantee I have a 100,000 pound generic bond with Barclays Bank fixed 1 year. Also 2 joint accounts with small amounts in the same bank. If the bank should go what amounts would be guaranteed.
J Blindside 02 Feb 09, 08:04	Two accounts I have two accounts each a little over £50K with Lloyds-TSB and Halifax . As they are both the one corporate company can you say if both these amounts are covered should either company fold ? thank you
Nadeem_Walayat 02 Feb 09, 08:38	UK retail Savers The government has shown by its actions that it cannot risk any UK retail customers to lose money in UK banks, as this risks a collapse of the whole UK banking system, with across the board runs on banks. However, the price paid is in terms of real terms loss of value of 30%, with another 30% to come over the next 12 months as sterling continues its bear market, which is the price of guranteeing the liability of the bankrupt banking system. Still, in a worst case scenerio with the whole banking system in meltdown the government would be forced for the purposes of self preservation to NOT honour the 100% gurantee of all deposits, and therefore you need to ensure you stick to the 50k per institution rule.
Ian Bellhouse 23 Feb 09, 15:20	Small Ltd Company Running a small ltd company with2 employees i have £40k in Close Brothers Bank of London will i be covered by the FSA £50,000 if the bank goes broke...
Nadeem_Walayat 23 Feb 09, 19:44	Close Brothers Bank Their UK deposit accounts should be covered, however offshore deposits would not be covered. Best to call them up and ask them if your specific deposit account is covered by the FSCS or not.
howard grant 17 Aug 10, 03:53	classic -- o Every dark night is followed by a bright sunny day. So, patience and attention is required and things will be fruitful in near future. --------- o There is nothing called a free lunch is this world. If anything needed to be resolved then initiated need a support to be sorted out. ---------- o Well, it’s amazing. The miracle has been done. Well done. --------- o Hat’s off. Well done, as we know that “hard work always pays off”, after a long struggle with sincere effort it’s done. --------- Savings

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