If (when?) Co-op Bank fails

[staffordian]

Does anyone know how a failing bank would affect holders of accounts?

I've been a current account holder for many years, have been very happy with their service and don't particularly want to move accounts.

In view of their present predicament I'm trying to weigh up the pros and cons of staying with them or jumping ship.

I know my money is safe; I only keep enough in the account to service the outgoings and I have a linked savings account with low to mid four figure sums in. The concern would be if anything catastrophic happens which causes a temporary hiccup whereby access to my money or ability to pay bills was denied for a time. I have plenty of funds elsewhere, but access to them is via the current account.

Is loss of access to the accounts a possibility or does the BoE or PRA or whatever its currently called have a plan to ensure continuity?

TIA

Staffordian

[Alaric]

Is loss of access to the accounts a possibility or does the BoE or PRA or whatever its currently called have a plan to ensure continuity?

Didn't we see the likely possibilities with the near collapse of Northern Rock, HBOS and the taking into public ownership of RBOS and Lloyds? The Co-op Bank is small enough that an arm-twisting industry rescue is perhaps the most likely. That said there wasn't a similar rescue for Equitable Life which in effect was bailed out by its own policyholders having to accept cuts in their policy values.

[staffordian]

My worry is that as a result of the above, the government might well not wish to repeat the process of taking over a bank and would leave it to commercial organisations to pick up the pieces, which might not be such a smooth process.

[hiriskpaul]

Does anyone know how a failing bank would affect holders of accounts?

I've been a current account holder for many years, have been very happy with their service and don't particularly want to move accounts.

In view of their present predicament I'm trying to weigh up the pros and cons of staying with them or jumping ship.

I know my money is safe; I only keep enough in the account to service the outgoings and I have a linked savings account with low to mid four figure sums in. The concern would be if anything catastrophic happens which causes a temporary hiccup whereby access to my money or ability to pay bills was denied for a time. I have plenty of funds elsewhere, but access to them is via the current account.

Is loss of access to the accounts a possibility or does the BoE or PRA or whatever its currently called have a plan to ensure continuity?

TIA

Staffordian

The PRA will have a fallback plan and "Resolution" powers to ensure continuity. The plan will most likely involve break-up and selling the current account/deposit business to another bank or building society - there will be no shortage of willing buyers. The rest of the assets would be wound down/sold off in some way, with bondholders and ultimately shareholders being paid out if there is anything left.

The outcome will be one of:

1) Takeover of the whole bank by another;
2) Bail-in of bonds so bondholders end up owning the bank (possibly with some equity injection from elsewhere, such as existing shareholders);
3) If 1 and 2 fail (e.g. bondholders may reject bail-in), Resolution by the PRA.

Bondholders (I am one of them) would prefer option 1. On the whole they do not want to own the bank. For customers, there is little to choose between any of these options - perhaps options 1 and 2 are slightly less disruptive.

[staffordian]

Thank you, I shall probably sit tight then.

Personally, I'd probably swap to something like the Santander 123 which gives more interest/cashback than the Co-op but Mrs S is rather more conservative than me and would rather not change, or if forced to, go to a bank with a local branch. Trouble is, without a crystal ball, it's hard to know which bank will retain which branches...

Staffordian

[UncleIan]

Does anyone know how a failing bank would affect holders of accounts?

I don't know but...I had an ICESAVE account when that went belly up I had to wait a bit before an email saying "this is what you do to get your money back". I can't remember how long it took though, and that wasn't a UK bank covered by the deposit guarantee thing that others have mentioned.

If you'll need to pay bills over a likely hiatus of weeks, then I'd make sure you have some money handy somewhere else to cover that risk for a while, say, two months to be on the safe side.

[hiriskpaul]

Does anyone know how a failing bank would affect holders of accounts?

I don't know but...I had an ICESAVE account when that went belly up I had to wait a bit before an email saying "this is what you do to get your money back". I can't remember how long it took though, and that wasn't a UK bank covered by the deposit guarantee thing that others have mentioned.

If you'll need to pay bills over a likely hiatus of weeks, then I'd make sure you have some money handy somewhere else to cover that risk for a while, say, two months to be on the safe side.

That was a little different. Icesave was insolvent. The Co-op Bank is not insolvent, just short of regulatory capital and in particular short of the current onerous individual capital demands of the PRA. No FSCS recovery is on the cards in this case.

If the worst happened and the accounts were taken over by another bank, the bank taking over the accounts will make the process as smooth as they possibly can, as it is in their best interests to do so. They will try to treat their new customers well, at least in the short term. No guarantee they will not try to gouge those customers later though!

[Slarti]

Thank you, I shall probably sit tight then.

Personally, I'd probably swap to something like the Santander 123 which gives more interest/cashback than the Co-op but Mrs S is rather more conservative than me and would rather not change, or if forced to, go to a bank with a local branch. Trouble is, without a crystal ball, it's hard to know which bank will retain which branches...

Staffordian

Don't change to Santander 123, open one in addition, that way you get more interest on some of your funds and retain the customer service, while it lasts.

Slarti

[staffordian]

Thank you, I shall probably sit tight then.

Personally, I'd probably swap to something like the Santander 123 which gives more interest/cashback than the Co-op but Mrs S is rather more conservative than me and would rather not change, or if forced to, go to a bank with a local branch. Trouble is, without a crystal ball, it's hard to know which bank will retain which branches...

Staffordian

Don't change to Santander 123, open one in addition, that way you get more interest on some of your funds and retain the customer service, while it lasts.

Slarti

Thats an idea worth looking at!