Measuring Bank and Building Society Safety
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by: ksanjitha
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Word Count: 403
Date: Sat, 10 Jan 2009 Time: 12:00 AM
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The price of the Credit Default Swaps (CDS) is one of the many reliable benchmarks for measuring a banking institutions safety. A CDS is meant to protect the creditors in case a financial institute collapses. The CDS is priced differently for each company and as a percentage of the value of the debt to be insured. Five-year contracts are regarded as the benchmark and like other financial instruments CDS are traded so the price is constantly moving.
The building societies designed as a much safer place to invest than normal banks because the societies are responsible to their members while banks have to take care of the shareholders. Unlike banks building societies are not compelled to increase their market share in a hurry or invest in the capital markets for profits. Although they deal with the property market building societies fund the vast majority of their lending through retail deposits. However banks face these problems as they use a sizeable amount of money for market funding.
Every building society is totally independent financial institute. Hence they are surer of the ownership of the savings and the customer is assured compensation. Banks do not offer the same type of security. Besides building societies cooperate with each other when ever necessary.
All foreign banks in the UK are regulated by the Financial Services Authority. These banks function under the FSCS and all savings with them are covered up to 50000. However there are some other banks which operate under a different method called the passport system. Under this system their bank in the UK is merely a branch governed by the rules of the country they belong. Hence they dont come under the full authority of the FSA. This scheme gives them European Economic Area (EEA) authority rather than full FSA authority.
If a foreign bank under the passport system collapses the compensation of 50000 is paid in two installments. The banks home country pays the first installment which usually takes longer time and more paper works. This money when it arrives together with second part of the compensation is paid by the FSCS.
With full guarantee of the Irish government the Irish banks scheme offers better compensation than other UK banks. Hence they are very popular with the savers. The Post Office saving scheme is also equally popular due to the same reasons. These institutions now offer full compensation of the savings customers have with them.
About the Author
Anjitha is a financial adviser and well known for his finance related articles . You can find more financial articles written by the author by visiting the following link .
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