With that in mind. Let’s add another zero to that number. Say you have a cool million (EUR 1 000 000). Now, if a banking crisis hits, you have a serious problem. So on goes the thinking cap. The thinking cap has been in hard use by private banking clients since Lehman and it is my experience that always and without fail the private banking client comes up with the same solution. “I’ll just put a hundred grand in ten different banks and then my money is guaranteed. Whoah, that was scary. I’m glad I worked that out. Now I can sleep easy. Boy am I smart!”
Well I have some sobering news for those of you who find yourself in this pickle and thought you had it all worked out. It doesn’t work like that.
The whole guarantee thingy is a bit of a façade. Whenever clients mention the guarantee as a criteria for moving money around I always ask them how long will it take for the money to be released to them if the underlying bank goes bust. No one has ever been able to answer me that one.
At its core, the thing is, you are promised your money (up to 100 000) without any time frame. It could be two days or it could be two years. Seriously. It could be two years. I have experience of dealing with clients who had deposits in bankrupt banks. The process of getting the money out under the deposit guarantee scheme was laborious and stressful. Let me tell you, from where I was sitting the guarantee didn’t look like much of a guarantee for those who found themselves in the process.
Bank bankruptcies are long protracted and ugly affairs, which often involve plenty of legal action lasting for years. Do you want your money to be part of that mess?
Okay, let’s say you finally get your money. Will you get it in one go? The mere fact that the bank is tapioca means that there will be some kind of capital controls in effect (Cyprus as an example) The fact that you have 100 000 in your account doesn’t mean you’ll get that 100 000 out in one go. Access to that money may well be made very difficult. Maybe you’ll be forced to keep it on the account and be able to transfer a thousand or two at a time over a prolonged period. So in theory you have your money, in reality… aaah not so much.
What about interest? The chances are that you won’t be paid any interest during the time the whole thing is being sorted out. Sure, interest rates are low now, but in the future? Who knows. It is still a serious factor to consider.
Then comes the matter of trust. These things ultimately lie in the ands of the politicians. Do you trust them? Recent years have shown that in Europe when things really get bad the first thing to go out of the window is what has protected the individual and the first thing to walk through the door is an “exception” that you will inevitably feel in your pocketbook. When it comes to your money and investments in the next few years. Be prepared for plenty of “exceptions”.
Based on these facts, spreading your deposits over as many banks as possible so that the EUR 100 000 is covered in each bank does not in fact decrease your risk. The more banks you deal with the more chances there are that one will go bump in the night and you will be faced with one or a combination of the scenarios mentioned above.
Don't say I didn't tell you so.