Savings and Hot Money - Shelters from the Storm

How many of you would be prepared to swap the cash you have in a British bank to a commercial bank somewhere else in Europe?

Germany has followed the example of Ireland in offering a state-backed guarantee for all retail savings deposits within their banking system. The decision to safeguard deposits in Europe’s biggest economy and the country with the most savers came as Hypo Real Estate, Germany’s second biggest commercial property lender has reached the brink and is struggling to put together a successful rescue plan.

Robert Peston speaking on BBC news tonight indicated that Alastair Darling, the UK Chancellor of the Exchequer will have to follow suit within a matter of hours. In a truly globalised banking system largely devoid of foreign exchange controls and where money transfers take place at the click of a mouse, investors will gravitate to where the risk-adjusted rate of return is best. Given the fragility of the banking system - a system that can only run on trust - if only a handful of EU countries provide a cast-iron government guarantee for savings deposits, inevitably huge amounts of cash will flow towards them risking the capital base of banks in countries where retail deposits are protected to a lesser degree.

The German government has provided a safe haven - a rock in an increasingly hard place and the power of hot money will force one of the most remarkable policy decisions of recent years - to underpin savings deposits with state guarantees.

Robert Peston on the search for safe havens among worried depositors.

Unit 2 Macro: UK Trade in Services [20 May 2012]
Unit 2 Macro: Bank Cuts UK growth Forecast for 2012 [16 May 2012]
Unit 2 Macro: Exchange Rates Glossary [5 May 2012]
Unit 2 Macro: Monetary Policy and Inflation Glossary [5 May 2012]
Unit 2 Macro: Trade and Balance of Payments Glossary [5 May 2012]
Macro Revision: Putting Things in Context [29 Apr 2012]
Unit 4 Macro: The Euro Zone Crisis (Revision) [22 Apr 2012]
Unit 2 Macro: Revision on Interest Rates and the Exchange Rate [3 Apr 2012]
Posen on slower growth in the UK compared to the USA [30 Mar 2012]
George Buckley at the Millfield Economics Society [28 Mar 2012]
Beyond the Bike - Monetary Policy in Africa [28 Mar 2012]
Mortgage interest rates, LIBOR and game theory [3 Mar 2012]
A return to Glass-Steagall to prevent another crash? A lesson from economic history. [17 Feb 2012]
Unit 4 Macro: King on the UK Economy [15 Feb 2012]
Beyond the Bike - The Importance of Remittances [15 Jan 2012]
Unit 4 Macro: UK Bond Yields Reach Record Lows [11 Jan 2012]
Unit 2 Macro: Quantitative Easing in the UK [8 Jan 2012]
Unit 2 Macro: Mobile Phones and African Economic Growth [18 Dec 2011]
Beyond the Bike - The Value of Money [19 Nov 2011]
Unit 2 Macro: Should the EU introduce a Tobin Tax? [14 Nov 2011]
AS Macro: The State of British Business [13 Nov 2011]
Eurozone crisis - a selection of resources [12 Nov 2011]
Unit 3 Micro: UK Executive Pay - All in it Together? [29 Oct 2011]
Can the “invisible hand” solve Africa’s poverty? [13 Oct 2011]
Why Is Macroeconomics Such A Mess? [11 Oct 2011]
Greek debt decision tree [25 Sep 2011]
Unit 4 Macro: IMF Flags up Risks of Double Dip [20 Sep 2011]
Study Note - The Circular Flow of Income [15 Sep 2011]
Mixing with the Nobel Economists [4 Sep 2011]
Unit 4 Macro: Dangers of High Inflation [11 Jul 2011]
Unit 1 Micro: FirstBuy, Affordability and Effective Demand in Property [10 Jul 2011]
AS Macro Key Term: Deflation [24 May 2011]
A2 Micro: Oligopoly [20 May 2011]
UK Economy Update: What Mervyn Said [11 May 2011]
A2 Micro: Innovation in Markets [4 May 2011]
A2 Macro: Back to Roubini - a Year On! [11 Apr 2011]
OCR F585 June 2011: Euro Area on the Rocks? [11 Apr 2011]
ECB breaks rank and raises interest rates [7 Apr 2011]
AS Macro Key Term: Expansionary Monetary Policy [4 Apr 2011]
A2 Micro: Updates on Competition Issues [2 Apr 2011]
Why is the Yen appreciating? [18 Mar 2011]
Timetric: Mortgage Lending and Mortgage Rates [14 Mar 2011]
Ireland - Mass Unemployment and Shrinking GDP [10 Mar 2011]
EU Economics: Germany leads Euro Zone revival [25 Feb 2011]
David Smith on Shifting Sands in the Global Economy [8 Feb 2011]
Regulation and the banking industry: reflections from Davos [30 Jan 2011]
Shorting the market - the vultures target HMV [23 Jan 2011]
Will we have to live with high unemployment? [17 Jan 2011]
EU Economics: EU Economy in Charts Jan 2011 [29 Dec 2010]
Using Google Docs - The Irish Financial Crisis [29 Nov 2010]
iLand - Shareholders and Taxpayers feel the Pain [24 Nov 2010]
What You Need to Know About Economics [18 Nov 2010]
The Acid Burns Through - Requiem for Neo Liberalism [28 Oct 2010]
Jerome Kerviel and the Principal Agent Problem [5 Oct 2010]
Housing market and negative equity [31 Aug 2010]
Credit squeeze - businesses rely more on factoring [23 Aug 2010]
King on the economy [11 Aug 2010]
Choppy times ahead [11 Aug 2010]
Housing and the British Economy [5 Jun 2010]
Australia divided on a mining super-tax [4 Jun 2010]
A selection of revision notes on exchange rates [2 Jun 2010]
Are we on the cusp of a second banking crisis? [1 Jun 2010]
AS Macro Revision: Household Saving [30 May 2010]
AS Macro Revision: The Importance of Consumption [30 May 2010]
Euro Land and Optimal Currency Areas - A Valentine’s Day Massacre [29 May 2010]
Warnings of hysteresis for the EU economy [29 May 2010]
AS Macro: Sterling and the UK Economy [29 May 2010]
Roubini at the LSE - governments run out of policy bullets [20 May 2010]
AS Economics Revision - Managing the Economy [2 May 2010]
AS Economics Revision - Dissecting the Recession [1 May 2010]
Accommodatory policies [24 Apr 2010]
Robert Peston - On the Money [5 Apr 2010]
Small businesses and financial economies of scale [2 Apr 2010]
Capitalism - A Love Story [5 Mar 2010]
UK CEOs on their recession strategies [23 Feb 2010]
US rate rise causes hot flows of money [20 Feb 2010]
Inflationary pressures in China [16 Feb 2010]
Celebrities lobby for a Robin Hood tax [10 Feb 2010]
Mervyn King on Tailwinds and Headwinds [10 Feb 2010]
Assorted Links (11 Jan) - Focus on Business Economics [11 Jan 2010]
Assorted Links (6 Jan) [6 Jan 2010]
Revision Presentation - Monetary Policy for AS Economics [27 Dec 2009]
Impact of global recession on developing countries [18 Dec 2009]
Is monetary policy becoming less effective? [16 Dec 2009]
New figures show extent of wealth inequality in the UK [11 Dec 2009]
Reasons to expect a Nike Swoosh recovery [13 Nov 2009]
Judging the impact of QE [5 Nov 2009]
Public debt and intergenerational equity [21 Oct 2009]
Gloomy summary [13 Oct 2009]
Pain in Spain - on the brink of depression [26 Sep 2009]
Debt repayment - a virtue or a curse? [17 Sep 2009]
King confirms green shoots [15 Sep 2009]
Mature Banking [14 Sep 2009]
The Wealth Effect [12 Sep 2009]
BRIC Watch: Brazil climbs out of recession [11 Sep 2009]
A2 Macro: Domestic and External Headwinds [11 Sep 2009]
World Economic Forum drops UK a place in competitiveness rankings [9 Sep 2009]
Keynes v Friedman [5 Sep 2009]
What happens when the hose pipe is turned off? [23 Aug 2009]
Bank lending and the economy [3 Aug 2009]

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