When the chips are down nations seem to retreat from international schemes and look after their own domestic affairs. It seems to be our natural instinct and certainly the instinct of politicians who know where the voters are. Iceland yesterday guaranteed all domestic deposits in Icelandic savings accounts, although UK savers in Icesave and Kaupthing Edge will not be covered.
Of course Kaupthing Edge savers are covered by the £50,000 UK compensation scheme so unless you have over £50,000 you are protected. Savers with Landsbanki (Icesave) have to use the passport scheme. That means applying to the Icelandic compensation scheme for the first tranche (around £15,000 or so) of compensation then apply to the UK compensation scheme for the balance. This system is more complex and has never been tested. If you have savings in Icesave then you may have been worried yesterday when you couldn’t withdraw your money:
Times readers reported yesterday morning that they could not withdraw their money from Icesave accounts over the internet. But a spokesman for the bank said that Icesave was now operating normally and depositors could withdraw money. He added that the Icelandic Government had ample foreign reserves to cover the £4bn of British deposits in the event of any collapse.
Times Online, 7 October 2008
Perhaps the Icelandic government has sufficient foreign reserves to cover UK customers’ deposits but I wouldn’t want to rely upon that.