Monday, 6 October 2008

Will Finland Guarantee All Saving accounts?

"The German government says it will guarantee all private savings accounts.

Finance Ministry spokesman Torsten Albig says the decision to guarantee the savings deposits represents a new direction in actions to help stabilize the economy.

Chancellor Angela Merkel, said: “We want to tell people that their savings are safe”. The previous scheme had guaranteed 90% of all bank deposits but only up to EUR 20,000 per account instead. Now, They will provide a guarantee on all EUR 568 Bn sitting in private accounts in Germany"

Ireland, Greece and now Germany....who's next? who will start providing all guarantee to their citizen deposits? France, Sweden, Finland?...

The worrying part in Finland, I would say, is about the share of Foreign Banks, namely Nordea (Sweden) and Sampo (Denmark) and their involvement in the Baltics. Please, note that I have no access to their Balance sheet and I have no clue whatsoever about the health of this two banks. But you see when I see Germany going into those difficulties, a country with very high saving (the highest in Europe), and with a housing market that has not moved since 1990, it's a bit worrying...

I guess they will step in when a bank will show "great" difficulties, so let's allow them to cross fingers and touch wood in the meantime...Hoping that the crisis is not spreading to the Nordic countries. Maybe the crisis doesn't like cold?

The guaranty is about 25.000 euro, why don't they increase it, at least to reflect the inflation we have had to endure in the past few years? For more information about the guarantee, see this article where I highlighted the issue in November 2007 -indeed, that's the first thing I checked the when the crisis started to get more serious from its first appearance in August 2007.

How about the Finance Minister? Why Katainen is waiting to make reassuring announcement? After all there are lots of savers worrying...

"Presumable fearing a flood of funds across it’s borders into Germany, the Danish government swiftly moved to guarantee all the deposits in its system while Austria intimated that it was considering a similar move. Meanwhile the UK and French governments rushed to find out the details of the deal. By this morning pressure was coming on to the UK government to introduce a similar scheme"

What would happen if suddenly, funds were to move to Sweden or Danmark. I'm wondering if then Nordea and Sampo are then providing, as of today, higher protection than Finnish banks. So should they act to at least increase the protection to level similar to the Sweds or Dans, otherwise they could be a run on Finish banks i.e Aktia, OP etc.. But as shown in Update 2 (see below), Bank Of Finland is not hinting that such move is imminent. It could be, after all, that highly indebted consumers/savers don't have more than 25.000 euro...and the one who have more, have already made a move a long time ago, no?

humm Katainen looks busy preparing the municipal election by trumping the "tax cut" elements. Although, He has changed his view on how the economy will unfold in the next years or so... a U-turn compared to very near past comments. He was overly optimistic while the global financial system was breaking apart -they clearly didn't understand what was at stake-

"Finance Minister Jyrki Katainen has warned that budget cuts may be necessary if the economy slumps further than expected.

Interviewed on YLE television on Saturday morning, Katainen noted that there are many budgetary stimulus measures that could be taken, including further tax cuts. If stimulus moves are insufficient, he said, the government will take on more debt and/or cut expenditures.

Update 1:
"The Swedish government said Monday it will raise the limit for deposit insurance to 500,000 kronor (US$71,000) in a move to retain confidence in the country's banks.

Sweden previously had a deposit insurance for savings of up to 250,000 (US$35,500) kronor.

The widened deposit insurance will cover easy-access savings as well as those locked for a longer time

So Sweden is now following the move I was highlighting with regard to deposit level. It is going to put pressure on Finland and should/must follow suite...unless they are sleeping and do not understand what is currently happening...the more they wait the more dramatic the consequence will be.

They (Finance Minister) have denied the extend of the slowdown and now are behind the curve in term of policies or stimulus. Older framework that were valid in old good time, are not any more. Time has changed so should policy. As Usual we will see reactivity instead of Pro activity, something that will cost in the medium to longer term.

Update 2 :
"Finnish banks have weathered the financial sector crisis well so far, the Bank of Finland said on Monday, adding that the situation remained difficult in the money and wholesale money markets. "The profitability and liquidity of the Finnish banking system are at a good level," the Bank of Finland said in a statement"

So BOF seem still very positive. Since 60% of Banks in Finland are owned by foreigners i.e Sampo and Nordea, I'm not sure if BOF is talking about the 40% remaining?

Update 3:
Finally, Mr Katainen agreed to raise the limit.
"7.10.2008 at 16:01

Jyrki Katainen , the Finnish finance minister, said at an EU finance ministers' meeting in Luxembourg on Tuesday that Finland would raise its deposit guarantee limit to the new minimum of 50,000 euros agreed on by the ministers.

Mr Katainen added the doubling of the limit, to be put into effect on Wednesday, was a temporary measure


Anonymous said...

"Denmark on Monday said it would guarantee all bank deposits amid turbulent markets."


Anonymous said...

"Austria will follow Germany in guaranteeing deposits of retail savers, Finance Minister Wilhelm Molterer said on Sunday, but he left open up to which amount the guarantee would be granted."


HousingFinland said...

Thanks Anton for the Update!

I suppose the moves are more symbolic and psychologic than anything else...

Anonymous said...

Another update ;-) : Nordea and Danmark:

"Nordea, the Nordic region's biggest bank by value, said on Monday it would contribute to a guarantee scheme for Danish bank deposits at a direct cost of around 400 million euros over two years. The Danish government and the Danish banking sector have agreed to protect depositors and ordinary creditors of Danish banks against losses not covered by the public Danish depositor guarantee fund or by any other arrangement. "The net financial effects for Nordea from the guarantee are still highly uncertain and are subject to the finalisation of the agreement," Nordea said in a statement"