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Moodys Downgrade UK Banks Is Your Bank Safe

by Jim ONeil on October 11, 2011

in uk banks

The credit rating agency Moody’s recently downgraded deposit and senior debt ratings for 12 financial institutions in the UK. It believes that the largest lenders will continue to receive government support, while smaller banks will be left to fail. This recent move by Moody’s has only worsened an already shaky level of consumer confidence.

Moody’s stated that the downgrade of lenders including RBS and Lloyds does not indicate that the UK banking system is weakened. Despite this and reassurances from the British Chancellor, many savers are feeling nervous. Before they reach panic state, they should learn how to determine the safety of their bank.

One of the most important things to keep in mind is that the Financial Services Compensation Scheme (FSCS) covers deposits with all building societies and banks that are authorized by the Financial Services Authority (FSA). If a covered bank defaults, FSCS will cover the first 85,000 pounds of lost deposits per customer, per bank, up to 100 percent. People should visit the FSA Web site to see if their bank is covered.

Due to the maximum FSCS compensation limits, people with deposits exceeding the threshold may want to spread their money between multiple banks. Individuals with foreign bank deposits may need to file their initial claim against the foreign scheme in the event of a default. FSCS would pay top-up compensation, resulting in a lengthy process.

Individuals with loans need not be concerned about the size of their bank but savers should realize that large banks might be better. Though recent evidence reveals that size does not guarantee security, smaller banks are often more dependent on a single market sector. In addition, they usually have smaller reserves to protect against unexpected setbacks. Also, keep in mind that banks pay credit rating agencies to assess them, so banks may dictate the results.

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