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To guarantee or not to guarantee, that is the question

Monday, 6th October 2008

Isn’t it great to see the pact among EU leaders not to go it alone into the financial storm managed to last a mere 24 hours? On Saturday, German Chancellor Angela Merkel railed against Ireland guaranteeing the deposits of its savers, saying she was 'not amused', and then promptly seemed to do exactly the same thing.

The big question that hangs over governments guaranteeing 100% of savings is whether it's a good idea to take on all the risk and not be in a position to exert any control. At least if you nationalise a bank you've got a say in matters.

I happen to think the guarantee is still a good idea because we're still very much in a confidence game. It will be lack of confidence that stops banks doing business with any institution and it'll be the subsequent lack of cash (or liquidity if you must) that'll will kill them, not necessarily whether they're actually sound or not in reality.

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Colin Taylor

October 6th, 2008 12:37pm

If as the government keep telling us UK banks are basically sound where is the risk in a 100% guaranteeing deposits?

If the banks are not sound - why are they not acting?

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