Tuesday 7 October 2008

DEPOSIT GUARANTEE BY BANKS

The funny policy of depositors not being able to protect their deposits in cases of bank bankruptcy is crazy. some governments like the Irish have guarantee 100% of deposit by customers in the events of bank collapsing. why can't all government do the same and protect the wealth of hardworking savers?
the main reason is due to the fact that depositors sign to some terms, this may include bearing liability in case the bank fail. rich surplus income individuals deposit money in banks for the gains of interest. the bank make them money when the interest rates are good. so the bank as a business policy lend this surplus deposits to deficit individuals at a cost. this is what is referred to as the cost of borrowing.
surplus income depositors benefit from the extra-amount of money borrowers pay to the bank, the bank takes its part and pay out the agreed rate of interest to the depositor. the partnership is an open understanding. when things aren't working fine, the depositor suffers just like the bank, so if the bank collapses the depositor is now in trouble, his wealth is trapped.
this is what makes saving huge sums dangerous. lately new saving banks have risen, like the online high interest bearing deposit. this banks are backed by some main street banks, but the credit crunch has made the online savers vulnerable has their parent banks are also in trouble.
but the depositor who plays a vital role for deficit income people to get loans, should be protected one hundred percent has they help the bank make money and the public get funds. this help businesses and people afford to get mortgages.
bank takeovers is now becoming a norm. an ugly and scary norm. global financial power houses are impotent in the face of unpredictable events.
in all this media hype, laymen may be asking, where has the money gone? what happen to all the funds in wall street, in London stock market etc? well who knows. the people are not being told the whole story. new parameters are being set. new power houses will be emerging. the poor will be suffering in all of this.

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