Sunday, 29 November 2009

No insurance is the best insurance (really)

Sounds surprising but uninsured drivers are less likely to have an accident: they drive carefully because they know nobody will pay for their car's repair. The same principle should apply to banks but it does not because the government guarantees up to £50,000 per saver and institution in the event of a bank going burst. No wonder the less solvent banks usually top the best savings rankings and savers are happy to trust them their cash: no matter what happens, they will get their money back, courtesy of fellow taxpayers.

That incentives risk-taking. Banks lend irresponsibly without worrying about the consequences or caring for their customers' money because the government will always step in to save the folk's savings. Without that guarantee, banks would think twice before trying to become the next Intergalactic Empire (RBS buying the Dutch lender ABN AMRO in 2007, the Force was not so strong after all) and savers would deposit their hard-earned cash into solvent institutions.

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