The black Monday suffered by global stock markets has been the headline news across Europe. In whatever language you choose to say it, panic has gripped the banks and the big fear now is it will spread to their customers.
Preventing people from rushing to banks to withdraw their savings has become a priority for all European governments. The message to citizens needs to be clear. As the European Commission President Jose Manuel Barroso puts it: “It’s not just a problem of injecting liquidity, we also need to inject credibility in the European response. That is why we are asking and urging member states for a closer cooperation.”
Guaranteeing customers’ savings if a bank goes under was introduced in America in the wake of the Great Depression of the 1930s. Today in Europe all countries have a system in place but the level of cover given to savers is not the same across the board.
Customers of Italian banks are insured on just over 100,000 euros of their savings. In Ireland it’s slightly less but those with accounts in the country’s six biggest banks can enjoy 100 percent cover for the next two years. In the UK the limit is 63,000 euros, while in France it is 70,000 euros.
The EU has decided the minimum amount of savings guaranteed should be 50,000 euros, and that access to that reimbursement should be quicker. The limit is per person per bank account, so spreading savings across several banks would mean greater cover.
One financial adviser said: “The older generation are genuinely worried that they could lose a big tranche of their life savings, and for those people I’m saying quite clearly just make sure that you only have 35,000 Pounds (the previous limit in the UK) per institution. Beyond that you move excess money to other institutions so that you have that compensation limit in all cases.”
The key to avoiding total chaos is confidence. The great crash of 1929 came about when savers suddenly whisked all their money out of their accounts, reducing the banking sector to an empty shell that eventually cracked.