Rabobank’s exit from the Irish market is not a happy ending for Irish savers.

The Netherlands-HQ’d online bank felt like a breath of fresh air when it entered the Irish market in 2005.

The straight-talking savings bank, as it called itself, had more going for it than those funny TV ads; it was Ireland’s only triple A-rated financial institution.

That meant that the money you had on deposit there was safer than in any other Irish bank in the event of another Wall Street crash.

Ratings matter

After 16th May depositors will have to find somewhere else to put their money. Forget interest rates for a minute here. You need to think about the unthinkable.

Bank failure is a real possibility these days and it is something you should give thought to as you decide where to place your Rabobank savings.  And because of the Bank Recovery and Resolution Directive (BRRD), your deposits are not necessarily beyond reach.

What does bank failure mean for your money on deposit?

There are three options for a bank in failure, one of which we are only too familiar with here in Ireland.

  1. The bail out, where external parties, typically governments, save the bank using taxpayers’ money – think Anglo.
  2. The disorderly collapse, of the sort experienced by Lehman Brothers in 2008, driven by a fear-fuelled exodus of deposits, downgrading of the credit rating and a domino effect of other factors making bankruptcy inevitable.
  3. Since the BRRD was introduced in 2014 there is the so-called bail-in route, which is rescuing a financial institution by making its creditors and depositors take a loss in their holdings. The EU directive ensures that a bank’s shareholders and creditors pay their share of the costs.

The Deposit Guarantee Scheme safeguards up to €100,000 per person per institution. Go here to see a list of institutions covered under the scheme, but if you have more than that on deposit, whatever you have over €100,000 could potentially be commandeered to shore up a failing bank.

Is your pension invested in bank bonds?

The BRRD removes the protection that bond-holders traditionally enjoyed.  A failing bank could hurt them, and that could hurt you. Who are the bond-holders? The chances are that your pension scheme is invested in bonds related to the financial sector. Should there be a high-profile bank failure that sets off a contagion effect across Europe, your pension fund might take a hammering. That means less money for you in your retirement.

I appreciate you may not be overly concerned about bank failure, but it’s something we monitor on behalf of our clients. This stuff is important and can have devastating consequences if you sleepwalk into a bail-in situation. If you’d like to know more, drop me an email or give me a call.