I think I know what Minister for Finance, Brian Lenihan, meant in that infamous Citibank conference call when he tried to play down the risk of Ireland’s banks suffering a deposit flight by claiming the fact we are an island would mitigate such a risk. He was, I think, referring to the c€100bn of deposits by households in the State. Theoretically of course households could withdraw their deposits and place them in banks in Northern Ireland (part of the same island) or the mainland UK. Indeed they could also transfer them to foreign-owned Irish banks operating here – KBC, National Irish Bank (Danske) or ACC (Rabobank) or Ulster Bank (RBS). But households suffer from inertia, that’s why sometimes banks might offer financial incentives to move your business to them, it’s hassle with changing direct debits, building up a relationship with another bank and what about credit cards and personal loans. It is clear however that households are concerned for the safety of their deposits though there are robust government and ECB backed guarantees in place.
And no doubt in part taking advantage of this concen, Nationwide UK (Ireland) opened its first high street branch yesterday on Merrion Row where it is providing a deposit-taking service only – that is, no lending. Take a look at the Nationwide (by the way no relation whatsoever with the 100% State-owned Irish Nationwide Building Society) website and prominently featured is a recent report in which it ranked in the world’s Top 50 Safest financial institutions. It makes clear that deposits are covered by UK’s deposit guarantee scheme
“Nationwide Building Society is a member of the Financial Services Compensation Scheme (FSCS) in the United Kingdom, which was established under the Financial Services and Markets Act 2000 to pay compensation if a firm is unable, or likely to be unable, to pay claims against it.
Payments under the FSCS are limited to a maximum of £50,000 or € equivalent per individual, that is 100% of the first £50,000 or € equivalent of an investor’s total lodgements. The limit applies to each investor and, since joint accounts will be deemed to be split equally between investors, two people with a joint account will have the € equivalent of a maximum of 100% of the first £100,000 guaranteed. Individual customers are restricted to one maximum amount of £50,000 across an organisation. If you have any further concerns you may wish to visit the FSCS website at fscs.org.uk.”
The financial institution has had a presence in the IFSC for the past twelve months but this is its first foray beyond that Pale.
So you could argue that Nationwide UK is exploiting the concerns held here about household deposits – on the other hand you could commend them for their business savvy for spotting the gap in the market and sourcing deposits from what is still by many standards a rich country. Significantly Nationwide UK is not providing credit in what is a troubled economy. Households may not make the effort to open accounts in Northern Ireland or mainland UK but there is less hassle with moving their deposits to a domestic financial institution even if foreign owned. And now you can do face-to-face business with them on Merrion Row, Dublin.
And herein lies a longer term strategic problem for Irish banking. At some point the economy will turn the corner and we will have a more stable banking system. But for banks that are acquiring medium term lending at 6%+ today, how will our banks compete with new foreign (or indeed domestic) entrants that can acquire funds at cheaper rates. And even today people are beginning to consider seeking loans internationally. I am familiar with a recent loan application at a domestic bank where the bank wanted the borrower to pledge a share portfolio worth more than the loan as security for the loan AND charge 6% for the property-related loan. With these terms, and aside from the hassle of dealing with a bank located in another country, why wouldn’t a borrower seek funds elsewhere and pledge the same share portfolio but get the euro loan at 3%? But then again perhaps Minister Lenihan is banking on that not being the case because after all we are an island.
NAMA Wine Lake 
Hi namawinelake,
Nationwide UK have been planning to open a branch in Merrion for over a year now. They have had their Spencer Dock branch, where they also take deposits there, for over 3 years now, not 12 months. Hence, Nationwide UK were not initially motivated by the current deposit flight from Irish banks.
Nationwide UK deposit guarantee changes in a few weeks. The deposit guarantee from January 1st 2011 is 100,000 EUR (not GBP) per person per banks as per the new UK deposit guarantee.
What ECB guarantee is there on deposits? There is the Irish state guarantee and the ECB has been providing liquidity to the Irish banks but there is no ECB guarantee per se. There will be in the future if new legislation passes the EC, but currently there is no ECB guarantee. Irish deposits, particularly in the NTMA An Post scheme as safe as the solvency of the Irish state.
There is no reason to move deposits to ACC Bank. ACC Bank are in wind down mode and offer pathetic deposit rates. RaboBank trade mainly as Rabodirect in the deposit market in Ireland and offer better rates than ACC Bank.
Anyway, agreed that Nationwide UK and RaboBank or massively benefiting from the deposit flight from Irish banks. Nationwide UK told the Sunday Tribune that deposits have increased by a massive 500% since the mass exit of deposits from Irish banks began.
Another important aspect of this saga to consider is the impact of raising deposit rates on the Irish banks. In the past 3 weeks, there has been a significant number of deposit rate increases by EBS, PTSB, BOI and AIB. They are having to pay more for deposits, far in excess of tracker mortgage rates, and there margins are been increasingly squeezed.
Hi Ciaran,
With respect to Nationwide UK’s Irish presence, I was relying on the Independent’s reporting “Nationwide UK (Ireland) opened for business in March 2009 as a direct savings provider” and I note that the Irish Times (http://www.irishtimes.com/newspaper/breaking/2009/0324/breaking29.html) confirm their launch into Ireland in March 2009. I formed the view by looking at their website http://www.nationwideuk.ie that the security of deposits was a unique selling point.
I take your point that the ECB has no formal role in guaranteeing our deposits. I was referring to what I recall as Governor Honohan’s claim that the ECB was standing behind Irish banks.
And your point about increasing deposit rates is well made and it begs the question as to how the banks will turn a profit if they are borrowing at 6% on the money markets or 3.5% plus operating costs from depositors and lending at 2-5% for mortgages/business.
The ICMSA’s recent talk about seeking a funding arrangement with a foreign bank for its members was a significant straw in the wind, I think.
The ICMSA’s recent talk about seeking a funding arrangement with a foreign bank for its members was a significant straw in the wind, I think.