When we open a savings or direct deposit account we do so with no fear of losing our money. It’s a circle of trust, an unspoken contract between us as depositors, or creditors, and the bank, as borrowers. We trust banks to safeguard our money, and banks trust depositors to provide them with the necessary ‘sticky’ funding to continue lending and remain liquid and operational. However, since the financial crisis of 2008, in an effort to privatise losses with ‘bail-in’ capital, regulators and governments around the globe explored options that risk putting senior deposit holders in direct line of suffering potential losses. This represented a sea change in banking regulation.
Key learning objectives:
Why are deposits important for a bank?
What are the FSCS and other deposit insurance schemes and why are they important?
What is ‘bail-in’ capital and how does this affect depositors?