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Imagine that, say, Credit Agricole went down, and the French government decided only to pay out deposit insurance on savings of customers of French branches, but not of branches CA had in other EU countries, for which CA did not have to pay into their deposit insurance schemes because they were just branches, not subsidiaries. Now add that there are EU laws that specifically state that any such discrimination is forbidden and that there is a minimum amount the French deposit insurance has to pay out to its foreign customers in the EU.

We might start wondering what this single market in the EU is actually about.

by nanne (zwaerdenmaecker@gmail.com) on Tue Aug 18th, 2009 at 07:53:36 AM EST
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They certainly shouldn't let banks operate in their countries, no matter if they were branches or subsidiaries, if they won't take part in the local depository insurance system. No way Jose.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Tue Aug 18th, 2009 at 08:05:36 AM EST
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Well, that's the way things are (for branches) under the single market, and that includes the European Economic Area. I don't see any major problem with it other than the general insufficiency of banking regulation on the European level -- deposit insurance taken alone seems to be arranged well enough.

General regulation of finance is where the British government is a problem. Maybe the Dutch government too, although I don't really think so at the moment. So on a karmic or moral level I don't know about the British beef with Iceland. Legally, though, they are fully in their right to insist on equal deposit protection for their citizens.

by nanne (zwaerdenmaecker@gmail.com) on Tue Aug 18th, 2009 at 08:36:47 AM EST
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I don't see what nationality has got to with it, as long as Icelanders using the Dutch or British subsidiaries/branches haven't been compensated differently than non-Icelanders using those very same branches... or if non-Icelanders using the Icelandic banks on Iceland were treated differently than the locals were.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Tue Aug 18th, 2009 at 08:45:21 AM EST
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The Icelandic government Argues that they are not discriminating on the basis of nationality but they are distinguishing branches based on location.

The question is, which regulator and deposit insurance scheme covers a branch located in a foreign country?

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

by Migeru (migeru at eurotrib dot com) on Tue Aug 18th, 2009 at 08:53:47 AM EST
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The FSA of the foreign country in which the branch is located?

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Tue Aug 18th, 2009 at 09:08:16 AM EST
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The subsidiaries (e.g. of Kaupthing) take part in the deposit insurance scheme of the country they are in. The branches do not. The problem is precisely that the deposits in Dutch and British branches of Landesbanki were treated differently by the government of Iceland.
by nanne (zwaerdenmaecker@gmail.com) on Tue Aug 18th, 2009 at 08:54:55 AM EST
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I can tell you of another very specific case, which I had studied in great depth in 2006 when I became aware that TEOTWAWKI was coming for banks and I started chasing the best yield/safety for my own liquidities.

The case relates to ING. ING has a subsidiary called ING Direct, which markets no-thrills, low-fees, at some time high-yield (but not so much so today) online banking services. The brand is operated worldwide, but the legal framework is not everywhere the same.

In France, ING Direct is a branch of the Dutch ING Direct. It is not a french-incorporated subsidiary, and it is not registered as an "établissement de crédit" at the Banque de France. It is only registered as a branch of a foreign bank from the EC.

As such, ING Direct.fr was NOT (and still isn't) covered by the "Caisse de Garantie des Depots" scheme (of 7Ok€ per depositor and per bank at the time, Sarko talked of raising it to 100k€ but I don't think it's actually in place yet). The website of CGD makes it very clear that depositors in such situations would have to file cross-border claims with the deposit insurance of the home country (The Netherlands in this case). At the time, the Netherlands offered only 20k€ per depositor in insurance (this has subsequently been made an EC-mandated minimum, but it wasn't even in place in the UK during the NR run).

EC does not mandate equal treatment in insurance for branches and subsidiary, nor for local or foreign banks. What it does mandate is that depositors from any EC country in a given bank, should be given equal treatment by all regulators concerned by a failure of this bank. Enrolment in deposit insurance may or may not be mandatory for cross-border operations, it is a mess.


by Pierre on Tue Aug 18th, 2009 at 10:58:53 AM EST
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From your information and that provided by Migeru, I see that there are two big zones of gray:

  1. whether you are banking with a subsidiary or a branch of a foreign bank - I'd say this is not a distinction that is accessible to retail clients and they should not have to expect to be treated differently;

  2. the fact that with branches, part of the deposit guarantee was provided by one State, and part by another. I must admit I'm not quite clear which amount was paid by whom in the Icesave saga, and which amount is claimed against another State (especially as some governments announced new guaranteed deposit ceilings right in the middle of the crisis).

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Tue Aug 18th, 2009 at 10:53:14 AM EST
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Under the 'passport' system referenced by Migeru, Icesave paid into the deposit insurance of the UK and the Netherlands for the amount of deposits they insured above Iceland.

Thus, the UK and the Netherlands paid the amounts above € 20,887 to an amount equal to their domestic deposit insurance, but Icesave also paid insurance for those amounts.

In this particular case, then, the lack of clarity was not that harmful for depositors.

The question is whether something like the 'passport' system can be made mandatory by a national regulator, or if banks will just in general prefer it because having pointed out that your savings are insured to a lower amount than those of other banks is bad advertising.

by nanne (zwaerdenmaecker@gmail.com) on Tue Aug 18th, 2009 at 11:57:16 AM EST
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