Comment by josephlord | Hacker News Reader

Comment by josephlord | Hacker News Reader

Parent Full thread

Icesave was a UK arm of the Icelandic bank. They were regulated by the UK's FSA and included in the UK's compensation scheme (FSCS). I checked before I put my ISA with them. I believe at the time deposits upto £60,000 were covered (the limit is now something like £80,000 or £100.000).

As part of the EU scheme I think the intention was for local compensation schemes to pay out to consumers and reclaim from the bank's home countries if the bank failed. Obviously this part didn't happen (and possibly could never have happened) but if the FSCS did not list Icesave I would not have invested.

My due diligence was checking the bank was properly covered by the UK scheme and that I did not have more money in it than was covered by the UK's compensation scheme.

A case can be made that those investing more than the scheme should have lost money (not necessarily just for Icelandic banks but also for the UK banks that were bailed out) or that FSCS should not have committed to compensate but they did so they really did need to pay out.

It was slightly more complex than that. Icesave was registered under the "passport" scheme, which meant that technically savers would have had to claim the first EUR 20,000 from the Bank's host country (Iceland in this case), with any top-up remainder being covered by the FSCS (up to I think around GBP 50 or 60k as you mentioned). Savers were fortunate in that the UK government stepped in and guranteed everything up to the limit.

(I too had an Icesave account at the time, it was a fearful couple weeks)

What's also important to remember is that only retail investors were bailed out. Council's and the like lost everything.

I (probably stupidly and naively but in the end luckily) didn't pay that close attention and just trusted that the FSCS would come through. I was in the fortunate position of not needing the cash in the short term though.

It may have been a £50K limit, the precise number wasn't an issue for me at the time as I wasn't near either figure.

Where do you stand on that know? Would you be willing to take a substantially lower interest rate in a UK based account over a foreign, more ambiguously guaranteed one?

Would probably still trust FSCS upto it's stated limits (although I would reread/print relevent bits from their website and might do research before investing in Icelandic, Greek, Cypriot and maybe even Italian banks to check there is no risk of devaluation and default that isn't covered.

I don't really know the specifics, but at face value its sounds like the UK's FSA is the one that failed here (and got stuck with the bill).

Did the Icelandic government ever agree to this liability? Was their ability to meet it ever looked in to?

Iceland was not obliged to ensure payment of a minimum compensation to the depositors.

See the EFTA court ruling at http://www.eftacourt.int/uploads/tx_nvcases/16_11_Judgment_E...

> Did the Icelandic government ever agree to this liability?

I believe it was part of some European agreement for open access to financial markets but I don't know the details. So I think that the answer is probably: Yes.

Edit: I've upvoted a sibling post with the judgment on the case. I haven't read it all but it seems clear to me that the rules were complicated and there were good reasons to believe that Iceland had such a liability.

>Was their ability to meet it ever looked in to?

Obviously not sufficiently. It may be that it was looked into initially when it was small and manageable but no-one said stop when the Icelandic banks grew beyond the ability of their government to rescue. Of course if you withdraw cover you can trigger the bank run that brings down the system. With hindsight you know that you should have stepped in to restrict opening of accounts before the risky position was reached.

Edit2 to add: Agree that FSA were at fault. My post was to explain the extent to which it was not an exotic foreign investment but a normal option available to regular customers and with the normal bank compensation scheme in place.

Reply on news.ycombinator.com