Breaking the Ice: Positive Omens

Dec 12, 2012   //   by Keith McDonald   //   Banking and Savings Accounts, Breaking News  //  Comments Off on Breaking the Ice: Positive Omens

Admittedly, there hasn’t been a great deal of good news recently on the financial front. Savings rates are plummeting; the Autumn Statement was hit and miss; there’s colossal fines for HSBC; gas and electricity prices are heading up again… So, as it happens, two slices of good news on the same day seems quite a novelty.

And not only that, but it’s comparatively rare that two separate stories from the same day see a resolution or a twist months later on the same day again. So, for the sheer delight of serendipity, I thought I’d bring them to the fore.

Cold as Ice

Firstly, expect a right healthy dose of Christmas cheer in South Yorkshire! Around 28,000 customers of the Barnsley Building Society are to receive a windfall of up to £5,000 in time for Christmas after bosses at its owners, the Yorkshire Building Society, finally retrieved £8.8 million from two collapsed Icelandic banks.

It has taken a four year struggle with administrators, but bosses at Yorkshire BS have made good on their vows to recoup the £10 million lost by Barnsley when Kaupthing Singer & Friedlander and Heritable Bank went bust in 2008. Barnsley was forced to merge with Yorkshire to keep afloat following the Icelandic collapse.

Yorkshire bosses have also made good on their pledge to offer an ex-gratia cash payment to those Barnsley customers who were active savers and borrowers at the time of the takeover and have since remained with the Yorkshire group. This is great news for consumers, since few tie-ups to date from recovery funds involving Icelandic banks have reached the members of mutual societies.

And I’m curious as to whether the UK’s recent legal charge against the Icelandic state has precipitated the latest windfall. In September, the UK joined forces with the Netherlands and the European Commission to take the Icelandic government to task for flunking its obligations over Landsbanki, the collapse of which swallowed £4.5 billion of UK retail funds in the popular Icesave account.

A powerhouse of plaintiffs descended upon the court of the European Free Trade Association in Luxembourg to argue that the Icelandic state was ultimately responsible for compensating those who lost out through the collapse of Icelandic banks and that it had presided over a catastrophic failure by failing to monitor a banking system that had been allowed to grow irresponsibly. The hubristic Icelandic state claimed that the global financial crisis should exempt it from any such obligations by virtue of force majeure.

British savers were bailed out in part by the government, but the taxpayer has still footed the bill – to the tune of £2.35 billion. The attempt to reclaim the big pot goes on, amid plenty of attention towards the current deficit and level of borrowing.

But this small victory will provide cash in hand to tens of thousands, and there aren’t many better unexpected Xmas presents than that.

Around 28,000 Barnsley customers to receive a cash boost after Yorkshire claimed back £8.8 million from Icelandic banks.

Second Chances

Secondly, those recovering from severe financial trouble are likely to find that they soon have a new host of options available to them to help them recover their credibility. Since September, only Barclays has offered basic bank accounts to un-discharged bankrupts after the Co-operative Bank decided to stop accepting applications for its Cashminder account.

The Co-op said that around 100,000 of its basic account customers had some kind of debt management order and that there was only so much it could reasonably be expected to do while so few providers were prepared to take on the risk of those in financial recovery.

But the government was left with little choice but to look into the matter after a consultation on banking revealed that nearly three quarters of banking customers were having their accounts closed on being declared bankrupt and then one in five were unable to find any account at all.

Deprived access to accounts compromises the ability to recover financial stability since a bank account is often required to receive a wage or for paying bills.

The government is now expected to pass changes to insolvency law that reduces the risk of banks being held liable should bankrupt account holders spend money that is earmarked for creditors. The amendments should remove enough of the legal burden for banks to consider offering basic accounts again and sharing the proportion of risk more fairly across providers.

The Co-op said that it was looking forward to playing a part again should the heavy burden it assumed upon its shoulders begin to be shared between other banks.

We have long campaigned for a level playing field for basic banking with all providers, including new entrants, genuinely performing on the issue of financial inclusion.

Access to banking for un-discharged bankrupts remains a key area where consumers have limited choice and urgent change is needed to stop the continued fall in standards for basic banking.

Robin Taylor, Head of Banking, Co-operative Bank

While not the cash handout elucidated above, policies promoting financial inclusion will offer a second-chance saloon and could alleviate a lot of worry heading into the festive period.

Co-operative Bank

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