Are deposits secure if correspondent bank gots bankrupt?

[Marie Manila]

Recently Ipagoo and Mistertango got some problems and also some other banks like Versobank, Satabank, ABLV, Loyalbank among others are in liquidation.
Therefore some questions came to my mind.

In Europe EMIs have to hold customers money apart of their own money.
So, if Ipagoo or Mistertango ran into difficulties, they can refund all their customers.
For this purpose, they open bank accounts in another bank (like the Bank of Lithuania for Mistertango).
But what will happen, of the bank, where the account is held, will get bankrupt?

Let's consider an EMI, which held money at Satabank.
When Satabank got liquidated, will the money deposited to the EMI be safe? Or will all EMI customers loose money?


Somehow the same question came up with offshore banks.
Let's take EPB. They have the National Westminster Bank PLC as intermediary bank for Euro transfers.
As far as I can understand, all the Euros are held at this correspondent bank.
What will happen, if the National Westminster Bank will got liquidated? Will all Euro deposits of EPB be gone?

 

[Tax Cow]

Let's consider an EMI, which held money at Satabank.
When Satabank got liquidated, will the money deposited to the EMI be safe? Or will all EMI customers loose money?

EMI accounts are down the food-chain in liquidation cases. Resident customers are at better odds of a recovery. As a non-resident EMI account holder, you must take a realistic view that you will lose 75-100%. When Satabank went bust, Malta demonstrated their illegal bias towards resident account holders - also over customers in other EU member states. Not any better than Cyprus in that regard.

What will happen, if the National Westminster Bank will got liquidated? Will all Euro deposits of EPB be gone?

I'd be surprised if EPB holds any meaningful EUR deposits, aside from a tiny percent, i.e. 0.5% EUR liquidity. In one way or another, they invest all EUR deposits in assets, i.e. short-term bonds, or by minimum, convert and hold the balance in another currency which has a positive interest-bearing deposit facility.

If NatWest goes bust, it's hard to speculate in detail how it impacts EPB. Their business model is not very transparent but my rough guess is that they use NatWest as a gateway to funnel in deposits, not as a storage vault.

 

[Tax Cow]

There's a lead: New EUR Bank Account Fees - Euro Pacific Bank

As you know, Euro Pacific Bank maintains the utmost conservative banking policies by keeping your funds in “overnight deposits” at our correspondent banks, with zero lending or proprietary trading.

However, due to the ECB’s introduction of negative rates, our correspondent banks have been charging us negative interest on euro deposits for years, and to date, we have been absorbing this cost on our clients’ behalf.

I would not take a statement, of an opaque PR bank with guts and pieces scattered all over different tiny islands, at face value. But if true, then 100K EUR of each client's deposit should be insured, and the excess up for grabs. Not worse than any high street EU bank - if they hold proper joint accounts, and not some kind of virtual e-money accounts at their correspondents. How the losses are allocated is a matter of liquidator's opinion, political tit for tat, and the law (to some extent).

 

[Martin Everson]

In Europe EMIs have to hold customers money apart of their own money.
So, if Ipagoo or Mistertango ran into difficulties, they can refund all their customers.
For this purpose, they open bank accounts in another bank (like the Bank of Lithuania for Mistertango).
But what will happen, of the bank, where the account is held, will get bankrupt?

You will find I have already answered this type of question in below thread.

LeuPay.EU - Review please is it a good offshore bank?

Note that EMIs are obligated via regulation to keep 100% of their customers' money in zero-risk accounts (e.g. an interest bearing bank savings account). Unlike banks, EMIs can't use that money to lend, leverage, provide credit, or make risky investments. So, in theory, if regulations are...

www.offshorecorptalk.com

What will happen, if the National Westminster Bank will got liquidated? Will all Euro deposits of EPB be gone?

Natwest is owned by RBS and RBS is 62% owned by the British Government. The bank is considered a core critical bank meaning the UK government stepped in already to prevent RBS from failing during the last financial crisis. With a market share of around 3% - failure of Natwest bank is not an option....lol.

Your biggest worry is when EPB itself goes bust. It's 100% reserve banking is nothing more than a gimmick. It will be client funds used to pay liquidators and fines etc if the bank is ever sued or gets liquidated. However there are plenty of complete moron cheerleaders walking around backing this bank out of share ignorance and blind faith. Stay away from it.

 

[Martin Everson]

I would not take a statement, of an opaque PR bank with guts and pieces scattered all over different tiny islands, at face value.

Agreed. If EPB is sued or gets into legal trouble then your money is gone like....poof. Full reserve banking is not profitable. Ask EMI's that are all full reserve by their very nature. They cannot make ends meet i.e ipagoo etc...so read into that what you may about EPB and and sudden shock to their finances. Does EPB have enough capital to weather a legal storm?....lol.

 

[Marie Manila]

You will find I have already answered this type of question in below thread.

Thanks a lot for this explanation.
I already expected something like this. The EMI will get only 100k (or even less depending of the bank jurisdiction) from the deposit insurance and that's it.
So everybody will just get back a small amount, even if the EMI itself is/was stable.

Natwest is owned by RBS and RBS is 62% owned by the British Government. The bank is considered a core critical bank meaning the UK government stepped in already to prevent RBS from failing during the last financial crisis. With a market share of around 3% - failure of Natwest bank is not an option....lol.

Your biggest worry is when EPB itself goes bust. It's 100% reserve banking is nothing more than a gimmick. It will be client funds used to pay liquidators and fines etc if the bank is ever sued or gets liquidated. However there are plenty of complete moron cheerleaders walking around backing this bank out of share ignorance and blind faith. Stay away from it.

EPB was just an example. It's more an general question.

Let's assume a Bank called "OCT-Bank". It has a correspondent account for USD at Novobanko in Portugal and another correspondent account for EUR at HSBC UK.
Novobanko is rated as a quite unsafe bank. HSBC UK is quite good, as far as I can see.

Do I face a higher risk of loosing money, if I hold my money in USD than EUR at OCT-Bank?

 

[Martin Everson]

Let's assume a Bank called "OCT-Bank". It has a correspondent account for USD at Novobanko in Portugal and another correspondent account for EUR at HSBC UK.
Novobanko is rated as a quite unsafe bank. HSBC UK is quite good, as far as I can see.

Do I face a higher risk of loosing money, if I hold my money in USD than EUR at OCT-Bank?

No.

Btw Novobanko would not hold USD. No bank actually holds USD on accounts outside of the US and some territories. USD can only be held at US banks and territories. Meaning Novobanko has a USD relationship with a US bank where the money is actually held.

So OCT-Bank holds USD with Novobanko which holds the USD at XYZ US Bank in America that has a direct Fedwire connection.

Anyway I am jumping of this thread.....enough banking 101. I have discussed all this elsewhere in other threads before. Search my posts and you will find them all

 

[Marie Manila]

I feel a little bit like I could predict the future.
EPB changed the correspondent account for most currencies to Novo Banko.

@Martin Everson
I hope you are right and it won't put the deposits at risk.

 

[Martin Everson]

I feel a little bit like I could predict the future.
EPB changed the correspondent account for most currencies to Novo Banko.

EPB is still around you mean....lol?

Just seen also from March 15, 2020 they have switched all Natwest correspondence accounts to Novo Banco....lol. They have totally lost Natwest as a correspondence bank...lol .

People don't want to listen to me about EPB so let them live and learn the hard way. My feeling are clear on this forum about the sh$t bank EPB. This bank EPB aint gonna make it with its business model period!!! We are in 2019 going on 2020 not back in 2009. Hiding tax cheats, moving jurisdiction from St Vincent to Puerto Rico to avoid CRS and offering banking to criminals is dead end activity....lol. What banks do this any more?

I hope you are right and it won't put the deposits at risk.

People will find out when EPB eventually closes its door whether EPB is really a non-fractional full reserve bank . When the water goes out you find out who is swimming naked. There is no other banks that will accept them after the failing Novo Banco boots them which is a 100% certainty.

Will put this under EPB thread...thx