Who would not get frustrated by dishonest practices, lacklustre customer service, and a willingness to gamble with taxpayer money?
Many people took their money away form their big bank and brought all their money to one small bank.
There are a lot of reasons why people are angry at big banks, in the United States of America, leading more than a million people to withdraw their funds last week on Bank Transfer Day. Well, now big banks have given everyone yet another reason to hate them — charging exorbitant fees to people receiving unemployment benefits with the help of state governments.
This is certainly not ideal. For Belgium it is clear: never bring all your savings into one bank account. You are better protected by having your savings in different banks because your savings have a government guaranty to 100.000 per account. But be careful: Funds, units or shares do not fall under this law of protection.
The interest payments made or attributed as from 1 January 2011 relating to bonds excluded until now from the scope of the European Savings Tax Directive shall be subject to automatic exchange of information. + The end of the grandfather clause shall also affect, among other things, the calculation of the asset test of the UCITs (previously, bonds covered by the grandfather clause were excluded from the investments in “debt securities” of the UCITs).
As from 1 January 2008, withholding tax of 15% has been levied on not only the interest portion (as initially stipulated) but also on the total capital gain realised following the sale or price rise of the underlying bonds of the UCIs in question.
Such withholding tax is only payable at the time of redemption (or settlement) of the capitalisation or income units in UCIs which invest, directly or indirectly, more than 40% of their assets in debt securities (such as bonds).
So Bank Transfer Day in the United States of America which got its start as a Facebook event for a few friends, turned into an overwhelming national success in less than a month, but would not be a good idea for Belgian account owners, because their savings in a Belgian bank are 100% secure. The money you save on your in Belgium based Deposit account is protected by the Belgian Government deposit guarantee scheme, which provides a degree of protection for account holders’ savings at the moment when a financial institution is unable to effect repayment.
In the autumn of 2008, in order to restore confidence during the recent financial crisis, the deposit guarantee in Belgium was increased substantially from €20,000 to €100,000. That guarantee applies per depositor for the total accounts held per bank. It covers all deposits denominated in a currency of the European Economic Area, plus investment accounts and debt certificates issued by credit institutions (e.g. savings notes). A guarantee scheme for certain life insurance policies was also devised, similarly covering up to €100,000. The guarantee covering financial instruments and securities held with a depository (e.g. shares, bonds, investment funds) remains at €20,000.
European consumers need reassurance that their savings, investments or insurance policies are protected no matter where in Europe they are based.
The recent financial crisis illustrated once more how banks are susceptible to the risk of “bank runs” – i.e. when bank account holders believe that their savings are not safe and try to withdraw them all at the same time. Since 1994, a European Directive (94/19/EC) ensures that all Member States have in place a safety net for bank account holders. If a bank is closed down, national Deposit Guarantee Schemes are to reimburse account holders of the bank up to a certain coverage level.
When the financial crisis hit in 2008, some quick-fix amendments were made, notably to increase the coverage level to € 100 000 (in two steps) and to abandon the possibility to have co-insurance in place (i.e. that bank account holders are not fully repaid, but are to bear a certain percentage of their lost sum – even when the lost amount would be lower than the coverage limit). However, as other shortcomings were detected in existing schemes, the Commission now comes forward with a proposal to fully amend the 1994 Directive and ensure that all lessons are learned from the crisis.
The key elements of the proposal are as follows:
- Better Coverage: upgrade to € 100 000 for all banks in Europe. This means that 95% of all bank account holders in the EU will get all their savings back if their bank fails. Coverage now includes small, medium and large companies as well as all currencies. Excluded are all deposits of financial institutions and public authorities, structured investment products and debt certificates.
- Faster payouts: bank account holders will be reimbursed within seven days. This will be a major improvement as today many account holders wait weeks, even months, before getting their money back. In order to facilitate such a short payout, managers of Deposit Guarantee Schemes will have to be informed early about problems at banks by supervisory authorities. Banks will have to specify in their books whether deposits are protected or not.
- Less red tape: for example, if you live in Portugal and have your account at a failing bank whose headquarters are based in Sweden, the Portuguese scheme would repay you on its own initiative and act as your contact point. The Swedish scheme would then reimburse the Portuguese scheme. This would be a strong improvement over the current situation, where all correspondence has to be done via the scheme of the country where the bank’s headquarters are located. The new approach will mean less bureaucracy and faster payouts.
- Better information: bank account holders will be better informed on the coverage and functioning of their scheme by a new easy to understand standard template and on their account statements.
- Long-term and responsible financing: concerns have been expressed that existing Deposit Guarantee Schemes are not well funded. Today’s proposals will ensure that they are now more soundly financed following a four-step approach. First, solid ex-ante financing provides for a solid reserve. Second, if necessary, this can be supplemented by additional ex-post contributions. Third, if this is still insufficient, schemes can borrow a limited amount from other schemes (“mutual borrowing”). Fourth, as the last resort, other funding arrangements would have to be made as a contingency. Contributions will, as is currently the case, be borne by banks. However, they will be calculated in a fairer way since they will be adjusted to the risks posed by individual banks.
Not only will Europeans have better protection for their savings, but they can now also choose the best savings product in any EU country without worrying about differences in protection. Banks will benefit from the proposal since they could offer competitive products throughout the EU without being hampered by such differences. Moreover, taxpayers benefit from a better financing of schemes – rendering state intervention much less likely.
Most improvements could already come in effect by 2012 and 2013 and would apply in all EU Member States as well as in Norway, Iceland and Liechtenstein, once incorporated in the European Economic Area Agreement.
In Belgium the guarantee at the moment applies to cash assets (in EEA currencies) held in the form of deposit accounts (time deposit, sight and savings accounts). Savings notes (“bons de caisse”, “kasbons”) are also covered if they are registered, dematerialised or held on a securities account.
Cash accounts are taken into consideration for the guarantee regardless of their origin or destination. Assets derived from a liberal profession are therefore protected as well.
Investors’ assets, that is, assets intended for/or resulting from transactions involving financial instruments, are also covered by the deposit guarantee.
For families it is important to know that if different people (such as spouses) can assert rights over cash assets held in a joint account, the balance of this account is deemed to belong equally to the co-holders. Each of these co-holders will be able to lay claim to the guarantee of up to € 100,000.
Accounts which contain assets belonging to a third party are deemed to belong to this third party. If there are several third parties, the assets are shared out among them for the purpose of calculating the guarantee. Each of these third parties may thus lay claim to the guarantee of up to € 100,000.
The guarantee is granted regardless of the place of residence or the nationality of the beneficiary.
But be careful: Certain depositors that can be described as a professional institution fall under the exemption regime. As regards the type of deposits, it should be noted that subordinated loans are excluded from the guarantee.
There also should be a certain control over the Belgian banks with supervisors continuing to take an active role in encouraging ongoing internal development efforts by monitoring and evaluating a bank’s recent improvements and plans for prospective developments. These efforts can then be compared with those of other banks to provide the bank with useful feedback on the status of its own work.
Operational risk is inherent in all banking products, activities, processes and systems, and the effective management of operational risk has always been a fundamental element of a bank’s risk management programme. As a result, sound operational risk management is a reflection of the effectiveness of the board and senior management in administering its portfolio of products, activities, processes, and systems.
Naturally internal controls should typically be embedded in a bank’s day-to-day business and are designed to ensure, to the extent possible, that bank activities are efficient and effective, information is reliable, timely and complete and the bank is compliant with applicable laws and regulation.
A bank’s operational risk governance function should be fully integrated into the bank’s overall risk management governance structure.
For small banks, independence may be achieved through separation of duties and independent review of processes and functions. In larger banks, the CORF will have a reporting structure independent of the risk generating business lines and will be responsible for the design, maintenance and ongoing development of the operational risk framework within the bank. This function may include the operational risk measurement and reporting processes, risk committees and responsibility for board reporting. A key function of the CORF is to challenge the business lines’ inputs to, and outputs from, the bank’s risk management, risk measurement and reporting systems. The CORF should have a sufficient number of personnel skilled in the management of operational risk to effectively address its many responsibilities.
I personally do not believe Internal audit coverage should be adequate. I would like to see an external committee controlling everything what is going on on the financial market. The robustness of every bank should be more controlled.
Because operational risk management is evolving and the business environment is constantly changing, management should ensure that the Framework’s policies, processes and systems remain sufficiently robust. Improvements in operational risk management will depend on the degree to which operational risk managers’ concerns are considered and the willingness of senior management to act promptly and appropriately on their warnings.
The State should control that the board establishes a code of conduct or an ethics policy that sets clear expectations for integrity and ethical values of the highest standard and identify acceptable business practices and prohibited conflicts. Clear expectations and
accountabilities should ensure that bank staff understand their roles and responsibilities for risk, as well as their authority to act. Strong and consistent senior management support
for risk management and ethical behaviour convincingly reinforces codes of conduct and ethics, compensation strategies, and training programmes. Compensation policies should be aligned to the bank’s statement of risk appetite and tolerance, long-term strategic direction, financial goals and overall safety and soundness. They should also appropriately balance risk and reward.
Banks are exposed to disruptive events, some of which may be severe and result in an inability to fulfil some or all of their business obligations. Incidents that damage or render inaccessible the bank’s facilities, telecommunication or information technology infrastructures, or a pandemic event that affects human resources, can result in significant financial losses to the bank, as well as broader disruptions to the financial system. To provide resiliency against this risk, a bank should establish business continuity plans commensurate with the nature, size and complexity of their operations. Such plans should take into account different types of likely or plausible scenarios to which the bank may be vulnerable.
When something is bringing the savings of the clients in danger the public should be warned and measures taken to protect the clients and the working of the bank.
In the United States account holders must be paid within 7 days in Europe it should be between four and six weeks after a bank failure.
Payment has to happen even faster as account holders can face important financial difficulties within a few days – for example when they must pay bills. A long waiting term can destabilize further the market by people become restless and going to sell more shares. I am convinced that it shall always better to have more than one bank as a safety net.
To make this 7 day deadline work, managers of Deposit Guarantee Schemes will be informed at an early stage by supervisory authorities if a bank failure looks likely. Banks will be required to mark eligible deposits in their books and to maintain up-to-date records. If a bank fails, no application from bank account holders will be needed; the scheme will pay out automatically says the European Commission.
Be careful. It is not that this crisis may be an eyesore to you and the worm has turned, that you must take actions to fast. Always keep seeing farther than the end of your money’s nose even when it may hang by a thin thread.
Do what you ought, let come that may.
Be sure to lay something by for a rainy day in different baskets.
* Sound Practices for the Management and Supervision of Operational Risk according the Basel Committee on Banking Supervision, International Convergence of Capital Measurement and Capital Standards: A Revised Framework – Comprehensive Version, Section V (Operational Risk), paragraph 646, Basel, June 2006.
Deposit Guarantee Schemes:
Investor Compensation Schemes:
Insurance Guarantee Schemes:
You can learn more about the why’s and how’s of Bank Transfer Day with the helpful FAQ on its Facebook page. Also of value is this handy “Field Guide to Closing Your Bank Account” published by FearLess, and Consumer Report’s 5 tips for a smooth transition.
Read more in:
- Bank Transfer Day Is A Success! One Million People Move Their Money
- How Big Banks And States Scheme Against The Unemployed
- Banker Bonuses Fall Thanks To Government Regulation
- How To Move Your Money Out Of The Big Banks [Video]
- Why Republican Economic Ideas Won’t Work
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- Bank Transfer Day and the Unbanked (blogcritics.org)
while Bank Transfer Day effectively inspired big bank accountholders to move their money to CUs, it may not have reached the unbanked: those who have no bank account at all and receive no services from any financial institution. Also left behind were the underbanked, a group that has some traditional bank accounts, but still uses the services of check cashers, payday lenders, and pawnbrokers.In the US, about 21 million households are underbanked, while a full 9 million are unbanked. Being without a savings or checking account has serious implications, leading to high check-cashing fees, lack of access to loans, and an inability to save for the future.
- What We Learned From Bank Transfer Day (fool.com)
Amid the hype and hoopla, the protest marches, and the bank occupations, it seems something interesting happened on Bank Transfer Day: People actually moved their money. The Credit Union National Association, or CUNA, which has been thrust into the unexpected position of suddenly being the cool kid at the party, reported that nearly 700,000 people have become members in the weeks leading up to the event, with 40,000 alone joining a local credit union Saturday.
The organizer of Bank Transfer Day made it clear this was a separate movement. Holding banks accountable, while important, was not the primary motivation. Whereas Occupy Wall Street is attempting to reason with a crazy person (large banks), Bank Transfer Day simply ended the conversation.
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The breakup became inevitable after concern over Europe’s sovereign debt caused a severe liquidity crisis and the rescue of a bank with a balance sheet of half a trillion euros — bigger than the entire Greek banking system — was seen as crucial to stop contagion.Reynders said Belgium would guarantee the financing of the future “bad bank” that would remain to hold high-risk assets after the dismantling of the Dexia group, to the tune of 60.5 percent, or 54 billion euros.
- Major withdrawals from Dexia in Belgium: chief (expatica.com)
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Belgium, France and Luxembourg rescued Dexia on Monday, splitting up the bank after it became the first lender to succumb to Europe’s debt crisis as the eurozone braced to recapitalise its banks.
- What’s wrong with positive money? (stumblingandmumbling.typepad.com)
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Our banking ills are remediable by other, safer policies:
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– Banks are socially irresponsible? Nationalize them, with democratic control.
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- Bank Transfer Day: A Guide to Closing Your Account (colonel6.com)
Bank Transfer Day can significantly impact the way banks are able to make a profit. In simplest terms, banks rely on our deposit account balances to make loans that net substantial profits. Without our deposits, banks can’t make loans. And if banks can’t make loans, they’re going to take notice. And they’re surely going to freak out.
Make your decision on which non-profit credit union you will join before walking in to the big bank branch to close your deposit accounts.
Go to the non-for-profit credit union you selected prior to closing your deposit accounts at the big bank.