Reading and seeing the pictures of the Brits that are in a mad panic to get their hands on the pound sterling they may have socked away in the Northern Rock Bank gave me a morning chuckle.
Not nice, I know. I was feeling particularly self-righteous.
Reports are that Northern depositors' pulled out £1.5 billion - that's about $3 billion US or 3.1 CAD. Not exactly an non-significant sum, eh.
Why be a self-righteous prig and chuckle?
I couldn't help thinking things like:
Where did the £1.5 billion go once it was in everyones hot-little-hands?
Was there a rash of spade purchases at garden shops?
Do Pound Stores sell cheap shovels?
Are Brits planting the stuff in the garden plot?
Are mattresses enjoying a little more stuffing over the weekend?
Has there been a burst of consumer spending?
Have armed-robberies and break-ins increased?
Questions. Questions. Questions.
I hope everything calms down a bit tomorrow.
But to put the "panic" of British depositors into a bit of context, even though I think they need to get a grip on themselves, here's a chart comparing the deposit insurance schemes in place in the UK with the ones in place here in 3/4s of North America - i.e. Canada (CDIC) & the U.S. (FDIC). The UKs deposit insurance website is here: Financial Services Authority, for reference.
UK depositors are guaranteed only the first £2,000 they put in an insured institution, Northern Rock is an insured institution. After the £2,000 they are guaranteed 90% of the next £33,000. Then you are on your own so-to-speak. Here in Canada and the US depositors in all insured institutions are guaranteed 100% of eligible deposits up to about a £50,000 equivalent. The chart below , I think, shows, in an uncertain time, how maybe average depositors may view what they have lent to an intermediary. Having funds in North American financial institutions seems less risky.
UK depositors start losing at the £35,000 level (£2,000 100% guaranteed plus 90% of any funds up to a total of £35,000). We lucky North Americans don't start losing until we have more that $100,000.
Now to put everything on the same footing I've assumed that is costs someone from the states and Canada $2.00 to buy a £.
Thus the UK £ limit for deposit insurance is the same as up to $70,000 for North Americans but as the chart shows, because of the 2 tier approach used in the UK, we here get an 100% where as those in the UK would get only about 91% after the first £2,000 i.e. $4,000. After $70,000 we, the lucky North Americans, continue on getting a 100% guarantee while those in the UK begin to decline.
After $100,000 or about £50,000 the risk starts increasing for North American depositors.