AS the true extent of toxic loans to property developers and speculators grows, and the prospect of more banks going down the path of nationalisation (or insolvency) becomes a serious possibility, customers are naturally asking themselves one question: will my money be safe here?
The answer depends on the type of product or service you have taken out with the bank, and on the assumption that regardless of what happens to some lenders, the Bank of Spain will remain.
As a rule of thumb, the Deposit Guarantee Fund offers two types of guarantees – ‘distinct’ and ‘compatible’ – both covering cash deposits up to €100,000.
Distinct covers cash deposits held in savings accounts, while compatible relates to securities and other financial instruments held by banks as depositors, or entrusted to them for the purpose of investing them.
Outside of the above the Deposit Guarantee Fund will wash its hands of any responsibility, as we saw with the Lehman Brothers case.
Now let’s have a closer look at other situations that we can find ourselves in: Debt issued by banks such as bonds, debentures or promissory notes, which generally offer higher returns, is not covered.
Nor are pensions, investment funds or the controversial preferential shares.
Most banks, including foreign-owned ones like Barclays or Lloyds, are Spain regulated and are subject to the above protection.
Yet a few EU-owned banks opt for a ‘passport scheme’, such as ING or Espirito Santo, where customers have to rely on protection offered by their home nations.
The value of shares deposited with the bank (the IBEX companies for example) is not affected by the bank running into problems, as the bank only manages these.
While it would be great if your mortgage debt disappeared with the bank, this will certainly not happen since mortgages can be sold to other banks which will then enforce the original terms and conditions.
Despite the Bank of Spain having to offer financial help to seven lenders – most notably Bankia – clients have been able to operate normally with their savings account.
Let’s just hope it stays that way.
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In a country with such a terribly run banking system as Spain, I (personally) would not even trust the Deposit Guarantee Fund. Saving offshore does not necessarily mean you are trying to hide money, indeed it is just fiscal prudence for those who don’t want their euros converted to another currency without their permission should Spain leave the euro.
That is what would happen, isn’t it Antonio?