This is Money Blog

Mandelson: The champion of laid-off bank workers

Looking askance of the Mansion House while commuting home yesterday, one might have mistaken it for some kind of upmarket brothel: a trickle of tuxedoed gentlemen scuttered through its side-entrance from their cars, heads low, no loitering at the entrance for fear of being seen.

But no, it was the annual British Bankers’ Association dinner, where the armies of lower-paid banking riff-raff strolling home in the sweltering heat – some of them Lloyds workers laid off today - found an unlikely champion in the form of Lord Mandelson, while their bosses quaffed wine, steak and raspberry crumble, but didn't tuck into humble pie.

The mood inside was jovial, with the outside world blocked off by gilt and neo-classical decoration. The head of the BBA, Angela Knight, looking resplendent in dramatic evening grown, remarked to the crème de la crème of the banking industry and the odd journalist that, since the room contained two of the most reviled professions in the industry, perhaps she should ask along some estate agents next year.

Cue some hearty hurrahs, followed by her argument that if UK banks have to hold larger amounts of money in their coffers to buffer themselves against a crisis, then other countries should have to do the same.

There needs to be better supervision in the financial services industry, she added, but there was still the habitual passing of the buck: it wasn’t just banks that lent people too much money that caused a crisis, there was the Government and the regulator, the Financial Services Authority, each of which had a hand in it all as well.

After grace had been said, which involved asking the good Lord for confidence to return to the banking industry, it took the figure of the business secretary, Lord Mandelson, to answer the prayers of thousands of laid-off bank workers by giving a tacit rebuke to their betters.

He said: ‘I want to acknowledge the thousands of workers in the banking and finance sector who have lost their jobs over the last year. Most of whom didn't have large pensions to look forward to.’

This from a man who has more titles than perhaps anyone in the room, a once stalwart champion of the City’s bonus culture. The heresy of it all.

He added: ‘We are convinced that the status quo ante is not an option. The Financial Services Authority and the European Union are both going to get a new rulebook. Things are going to change.’

Applause, desert, then back to the parlour for drinks. Glasses chink, a joke or two does the rounds. Elsewhere in the city, the families of bank tellers wonder how the year will end.

Alan O'Sullivan, This is Money

Building society balderdash: 'We can’t raise savings rates'

Everybody hates a moaner, don’t they? This is especially true when said moaners are far from perfect.

The building society sector jumps to mind and, in particular, the words of Nationwide boss, Graham Beale, this week

The former has hit out at the Government for savagely slashing the Bank of England base rate, supposedly scuppering its ability to acquire new savings customers, while the latter hit out at just about everyone. As always, reality is a grey area somewhere in between.

Mr Beale threw his toys out of the playpen spectacularly when he lashed out at the Government for helping NS&I and Northern Rock to attract a disproportionate amount of the savings industry.

He then complained the bill for the Financial Services Compensation Scheme (FSCS), used to compensate savers in the event of another financial services collapse, was unfair. Why? Because building societies may hold a large amount of the savings market, but they are not inherently unstable like banks.

He is miffed because payments to the FSCS cut a £241m swathe into his society’s profits. But let us not forget provisions for bad debts cost £394m. In layman’s terms that’s what is usually labelled reckless lending. Who can you blame for that?

Yes, the compensation payments are onerous, but it’s not like the building society sector is rock solid, what with six societies going to the wall over the past year. Consolidation can only go so far; soon there won’t be anyone left to bail their peers out (and to be fair to Nationwide it has been doing most of the bailing out).

And yes, millions of savers flocked to Government-backed institutions since the fall of Northern Rock, but it’s not like your building society has the most attractive savings offerings in the world, Mr Beale.

Nationwide's e-savings account pays a princely 0.45%, its e-savings reward pays 2%, but only 0.1% for a whole 12 months if you make more than three withdrawals in a year. So, would savers really be flocking through Nationwide's door if the Government-backed option was not there?

What really gets my goat, however, is the mantra that the Bank of England has prevented societies from offering decent savings rates by lowering base rate to 0.5%, which the chair of the Building Societies Association complained about at its annual conference last week. Surely, this should only affect those organisations that borrow the majority of funding from the money markets - such as banks – since the rate at which they lend to each other, Libor, is heavily influenced by base rate.

But building societies secure the majority of their funding from savers' cash. So, if they just don't cut savings rates, they would pull in more of money as savers would flock to them. If societies stuck to their founding principles and simply lent money acquired from their savers out to their mortgage customers, they could set their own savings and loans rates – and then wouldn’t need to blame the Government for their woes.

The mutual's argument is that they have to cut savings rates as they cut standard variable mortgage rates and rates on new mortgages. But building societies' loan rates – chiefly the standard variable rate on their mortgages – have not come down any where near as much as the base rate, but their savings rates have fallen dramatically. (An exception to this is Nationwide, which had a clause saying its standard variable rate would be no more than 2% above the base rate.) 

As the spread between savings rates and mortgage rates widens building societies are earning more money from their members as a result. Yet they say they can't attract savers, so why can’t they just raise savings rates?

I put this to Adrian Coles, director general of the Building Societies Association, and, to be honest, he came up with an extremely rational, well-thought-through response. He pointed out that the average society gets 70% of its cash from savers and 30% from the wholesale markets, so they are always going to be affected by Government changes to base rate to an extent.

But what about those societies that say they are fully funded by savings deposits?

The explanation he offered is that all societies have to hold approximately 25% of their funding in readily accessible cash under industry guidelines. This money can’t be lent out to members, but has to earn money somewhere, so it is placed with other institutions at a rate dictated by the Bank of England base rate. The same is true for money set aside to cover FSCS payments and possible bad debts.

All very plausible. But something just doesn’t quite fit. Does this money really need to be lent on the money markets? Given the negligible rates on offer, surely societies would be better off lending the money to each other on an instant access basis at decent rates? Is it not beyond their wit and wisdom to give each other better savings rates too.

And, as some societies on rely on the money markets to a small degree, does this really prevent them from setting rates significantly higher than the miserable 0.5% base rate?

Are societies just spouting balderdash, or does their management sound like good business sense?

- Alan O'Sullivan, This is Money

Barclays secret memos make interesting reading

Those secretive memos at the heart of the High Court wrangle between the Guardian newspaper and Barclays this week over the latter’s alleged tax avoidance sure make interesting reading.

As you may have heard by now, Barclays has managed to gag the Guardian over the publication of alleged internal memos posted on the newspaper’s website on Monday. These detail how the opaque structured capital markets division of the bank allegedly carried out all kinds of financial hocus pocus to allow it to escape paying millions in tax.

The paper argued it was in the public interest to detail how a bank indirectly relying on state support is allegedly jumping through all kinds of hoops to get out of its tax obligations. The bank said the documents are confidential.

Unfortunately, the paper lost a High Court challenge against an injunction yesterday, which means they cannot publish the memos. But this only prevents UK publications and websites from publishing the information, not quick-witted offshore ones. As they were available on the Guardian website for a couple of hours on Monday, 127 people got the chance to read them.   

Some posted their findings online abroad – and they remain there for those of you with the inclination to track them down.

The memos are a symphony of creative complexity. Diagrams of onshore companies fuse with lines threading the journey of billions of pounds past national and tax boundaries, like the flight path of migratory birds – or an air assault. The filenames are strangely appropriate for the courtroom war raging over the past week – Project this and Project that – reminiscent of some Second World War battle.

However, these are far from a blunt instrument of war; they are an intricate, fascinating insight into how 'brilliant minds' can always find their way around an obstacle, no matter how insurmountable.

The documents might not be a Barclays’ product but regardless, they are testament to a - some might say misdirected - ingenuity.

Some of them discuss tax avoidance measures, spelled out in a hodge-podge of Caymans companies, partnerships and subsidiaries created and linked with an inventiveness that borders on awe-inspiring.

But should the author of the documents vilified for their actions? After all, they are just doing the best they can for presumably very wealthy investors and customers. Surely, if this carry-on is a reflection of actual practice, it is the gamekeeper, in the form of HM Revenue & Customers, who should be criticised for allowing the poachers to run rings around it?

Then again, HMRC recently advertised for a tax expert with an annual salary of £45,000. Banks like Barclays pay tax specialists rather more, I suspect. The talent gap is one that won’t be bridged any point soon.

One thing is for sure: the taxman has his work cut out for him if he is going to even try to contend with his counterparts in the City.

As long as there are whistleblowers and websites willing to listen to them, then maybe, just maybe, he can keep up with the learning curve.

My open letter to the FSA

Dear Hector Sants,

Is it just me, or did anyone else find your speech yesterday as head of the City watchdog, the Financial Services Authority, hilarious and galling in equal measure?

It was like that of a child caught passing notes in class by their teacher:

Who gave you this? They did.
Why didn’t you pass it to me instead? You didn’t tell me to.
Why haven’t you done any of your homework by the way? Because they were distracting me. But I’ll do it now. Really, I will.

Apparently, you think the collapse of a myriad of financial institutions over the past 18 months was due to the following: a combination of social and cultural factors, a breakdown of the global regulatory framework, banks, compensation schemes, the inherent nature of financial markets and credit rating agencies. Not to mention individual investors themselves, who went off half-cocked and bought a load of financial products they didn’t understand. The idiots.

But the blame cannot be put at the feet of the FSA itself? Lordy, no.

The closest we got to a real admission of failure in your opening gambit, hidden deep in a stream of financial verbiage, was that there were ‘a set of regulatory drivers’ in the whole disaster.

To be honest, your excuses were as irritating as they were comic. For example, you basically pointed out the watchdog had a series of checks to keep banks in their place and outside of that, it just ‘relied on management to make the right decisions’. Yes, because we all know what a trustworthy lot bankers are.

Beyond enforcing its list of rules, it was not the FSA’s job to ‘question the overall business strategy of the institution or more generally the possibility of risk crystallising in the future’.

Am I living in an alternate universe or something? Surely even basic regulation of institutions as systemically important to the UK economy as the now-nationalised banks means looking at their business strategy? Surely there was an analyst buried somewhere in your plush City headquarters who could have realised RBS was pushing itself to the brink with its breakneck expansion plans, its willingness to dive headfirst into the disastrous takeover of ABN Amro?

Laughably, you then told us the FSA would be taking a much tougher line in future. An ‘intrusive’ line, a ‘direct’ line, based on a work ethic impressively called the ‘intensive supervisory model’.

This supervision is going to be so intensive, it’s going to be akin to a regulator version of the Eye of Sauron, of Lord of the Rings fame, casting its all-seeing gaze over the glass towers and chrome of our own financial middle-earth.

Somehow I'm not convinced.

Then came your warning: ‘There is a view that people are not frightened of the FSA. I can assure you that this is a view I am determined to correct. People should be very frightened of the FSA.’

Well, Mr Sants, people are frightened of the FSA, but for all the wrong reasons. Lax executive directors and the so-called heads of risk at banks are not frightened of the FSA, but ordinary people certainly are. Frightened of what it is not doing.

Finally, you rounded off with the point that people shouldn’t worry so much because, as worry-warts, we’re all part of the systemic problem: ‘The reaction of society as a whole has itself been a contributor to the severity of events.’

People are worried about their life savings? Well, they are just about the most selfish people alive. What is their problem?

We should just all sit back, stop panicking, stop asking questions and just let the regulator do its job. Which it will be doing.

From now on.

So you say.

I know you joined the watchdog just before Northern Rock collapsed in 2007 and the FSA's strategy before that point was not of your making. Nonetheless, you are the face of the organisation and we expect better than this.

Yours,

Alan O'Sullivan

Banking correspondent

This is Money

Irish banks do not deserve desertion

When Anglo Irish Bank was nationalised recently, I could almost see the headlines spinning towards me against a black background, frenzied music circa the average 1960’s thriller:

‘Irish bank collapses!’
‘UK savers fear savings losses!’
‘Mass riots as hoards of savers run amok! (though little is known of situation as-of-yet!)’

Given the flurry of conjecture and near-hysteria that has greeted the news of the Anglo Irish bailout, one would swear the bubonic plague had returned from the tone of some our readers’ telephone calls and e-mails.

So let’s just take a moment to breathe, make an Ovaltine, take a sedative and look at exactly what has happened here.

An Irish bank has run into funding difficulties and been bailed out by the Irish government. Similar funding difficulties have already hit Northern Rock, Bradford & Bingley, HBOS and Alliance & Leicester. That’s not to mention a handful of building societies and, let’s face it, RBS/ NatWest has had healthier-looking days.

But millions of people still bank with them.

Irish banks – bar Anglo Irish, before it was nationalised – are not terribly worse off than their counterparts in the UK. So here comes the science bit (click here for an explanation of any of the terms contained in this paragraph): A&L, Abbey, RBS, Barclays and Nationwide have only slightly better ratings than their Celtic counterparts, according to Fitch Ratings. The tier one capital ratios of the Irish banks are better than Abbey and B&B, while Bank of Ireland and Anglo Irish have better ratios than Barclays. Granted, the CDS rates of the Irish banks are in some cases two or even three times higher than those of some UK banks, but nowhere near alarming levels.

More importantly, the Emerald Isle’s banks are 100% guaranteed by the Irish government. Yes, yes, if all the Irish banks failed, the government would be unable to guarantee all of the nation’s euro400bn of savings as it would push Ireland’s national debt to 240% of GDP. But a meteorite could also slam into Ireland. Aliens could invade. The odds of these all happening are about the same.

‘But what about Iceland!’ the masses cry. ‘Iceland’s economy collapsed. And it has a similar name to Ireland! In fact, the only difference is one letter!’

That’s true, but calm down again, breathe into a paper bag and just think about it. UK savers got their money back. The UK Government had to step in after Iceland refused to honour its foreign liabilities, but it is unlikely Ireland would do likewise given the comparatively high proportion of UK savers with Irish banks, mainly via Post Office accounts. Also, after Kaupthing, Landsbanki and Glitnir bit the dust, other retail banks in Iceland continued to operate. Wages still flowed into current accounts; savings still attracted interest. 

Yes, before you say it, the Landsbanki collapse pushed the Icelandic government into eventual default. But it can turn to the International Monetary Fund, much the same way as other Western governments have in the past. Scenic Iceland and its 300,000 inhabitants are not going to spontaneously combust. The economy will repair itself with time and effort – as the UK would in such an eventuality. Albeit, in a great deal of time.

As it stands, Ireland had a national debt to GDP ratio of 40.6% at the end of 2008. The national debt in Japan and Italy is much higher, at over 100%. It was 47.5% in the UK at the end of last year. So there are worse cases to worry about than Ireland.

Like ourselves.

Finally, some of the banks, particularly Anglo Irish, offer decent savings rates and treat their customers fairly. Anglo Irish has been a regular feature at the top of the Moneyfacts savings consistency tables, although it has admittedly dropped off of late. However, pulling your savings out of an Irish bank at present may lead to loss of interest while you search for another deal elsewhere – as well as penalties if you have signed up to a fixed-rate deal.

My point is, for once let’s not make the situation worse by creating another run on yet another bank. Can we not learn a lesson from Northern Rock and keep our heads, while everyone around us loses theirs?

• Our colleagues on the Financial Mail hold a different view and believe all savers with variable rate accounts should pull their money out of Irish banks. Read their views on Irish banking stability here.

Credit card Laurens won't be disciplined

So, Lord Mandy spent yesterday evening casting aside his ermine cloak to shake his finger at representatives from the credit card industry, having called them to Whitehall and to task.

We learned today the Business Secretary Peter Mandelson has given them two weeks to stop ripping off customers pronto or face an Office of Fair Trading investigation. In turn, they have agreed to give customers a 30-day period of grace if they are having problems repaying their debts, as long as they seek the help of a debt advice agency.

But, let’s face it, this is about as far the revisions are going to go. The Lauren Coopers of the credit card industry (that's the obnoxious student of Catherine Tate fame) didn’t shuffle into Whitehall chewing gum and skip out an hour later smelling of roses.

We all know how well these Government ‘warnings’ have worked to date. We have been listening to Brown’s unique, son-of-a-Reverend, fire-and-brimstone-style bellowing at banks for weeks and watched with something not even approaching surprise as they have slouched back and replied, ‘Bovvered?’

The majority couldn’t be ‘bovvered’ passing on the Bank of England rate cuts either on their loan or mortgage rates, a series of them withdrew their tracker mortgages straight after the cuts (just in case customers might land a good deal, God forbid!), but they can cut their savings rates all right.

Approximately one fifth of the industry has cut the interest rate on their savings accounts, mostly by 1.5% or more. This is pretty substantial given the fact that the majority of accounts pay negligible rates as it is; if the rest passed on the rate cuts in full, then 12% of the market would actually be paying no rate whatsoever, according to price comparison website Moneyfacts.co.uk.

So what does Mandy think he will be able to do with the credit card industry’s Laurens?

Lord Mandelson (LM): ‘Do you know that you have failed to pass on any interest rate cuts on your credit cards despite the rapidly dropping base rate? In fact, the average credit card rate has risen from 16.4% to 17.03% over the last year alone!’

Credit card industry representative (CCIP): ‘But am I bovvered?’

LM: ‘Do you realise this is making life particularly difficult for card borrowers, given that an increasing number of 0% balance transfer deals are also being withdrawn from the market and customers are regularly finding themselves trapped on one card with a punitive rate?

CCIP: ‘Bov-’

LM: ‘With rising balance transfer fees thrown in…’

CCIP: ‘-ver-’

LM: ‘… and general tightening of lending criteria among lenders?!’

CCIP: ‘-ed.’

Fact: credit card rates have never been linked to the Bank of England rate, so Mandy has his work cut out for him.

Many will no doubt fall back on the hackneyed, but somewhat valid excuse nonetheless, that their loan books carry a higher level of risk following the credit crunch and higher credit card rates reflect this.

Also, some commentators have been calling for the Government to stamp out wider revenue-boosting sly tactics by card providers. This means such things as higher balance transfer fees and putting a 0% purchase period on a balance transfer card, even though this generally disadvantages the customer by tricking them to incur interest on their substantial balances. Then there’s also the practice of making customers pay off their least expensive debt first, leaving the most expensive until last.

Well that’s just not going to change. Bad deals are just a facet of capitalism, which should be stamped out through competition, but not Government hand-holding. For example, banks still have bonus rates, tricky withdrawal clauses and annoying conditions on their savings accounts, and that is unlikely to change in the near future, especially through any Government intervention.

On the other hand, the OFT did conclude the credit card industry was raking in more than £300m in unlawful charges in 2006 and put a £12 cap on all fees.

Could something as drastic happen with credit card interest rates if the Government manages to get a word in edgeways with its wayward charges?

Can we really expect a fair deal from the Laurens of the credit card industry?

Should we even be bovvered?

Abbey's staff toilet guidelines

It seems Abbey customers are kicking up a stink again, although apparently not as much as the bank’s actual employees.

Whatever am I going on about? Well I received a curious piece of information in the post the other day from a disgruntled Abbey customer. How do I know this? The cover letter was actually signed ‘Disgruntled customer’ and was attached to a laminated set of guidelines they apparently stole off the back of a toilet door in Abbey’s London headquarters.

It says: ‘At Abbey, we recognize that people have a diverse range of personally acceptable hygiene behaviours. And these could conflict with generally accepted social and hygienic standards.’

It then offers a series of guidelines, including the usual ‘always wash your hands’ to the inane, ‘Soiled tissues and personal waste must be flushed down the toilet. Not left around the cubicle.’

Before a warning that misuse of the toilets will be reported to Occupational Health and Safety, there comes a bit of a guilt trip: ‘It’s unacceptable for cleaners to be expected to clean up the extremes of fouling that have occurred.’

The thing seems genuine – the numbers for Occupational Health and ‘Facilities’ at the bottom connect to the right offices – so all things being equal, it must be from a genuinely disgruntled customer.

Under the banner ‘Shabby Abbey’, the coverletter from said customer says: ‘It may seem a strange thing to send you, but there is a serious point here: would you trust your finances to a bank whose staff have to be told how to use a toilet?’

Abbey doesn’t have the best reputation on the customer services front. The bank had problems with its probate business last year, integration of new computer systems after the Santander takeover, Isa delays (albeit along with a large part of the banking industry) and has been known to slash its savings rates ahead of Bank of England rate cuts.

On the other hand, maybe it’s a disgruntled competitor playing dirty PR tricks? (Pardon the pun). After all, the bank is becoming more and more of a force to be reckoned with: it is now the nation’s largest loan and mortgage provider. Not only that, but as fears over the stability of the banking industry have grown over the past year, savers have also been flocking to Abbey due to its position as a cog in the seemingly unstoppable Banco Santander wheel.

Is this a case of some probate customer thinking it is just another poo bank? A safety conscious saver thinking it is just the business? Or maybe it’s just a smaller rival hoping Abbey’s good fortunes will just be flushed away with the credit crunch?

The answer to these queries will, of course, do nothing to answer the over-riding question of what exactly are Abbey’s employees doing in their loo?

ID fraud: My bank is following my whereabouts

I began to wonder whether my bank was tracking my whereabouts after an unpleasant evening in Tesco: my card had been declined and the check-out girl was told in a pop-up screen to call the management over.

‘Do you know why it’s asking me to call the management?’ she asked suspiciously.

I didn’t. It was my card. I’ve got a clean criminal slate (for the record). My account funds, although not vast, where nonetheless there. Luckily, she gave me my card back and didn’t call the Feds after a friend stepped in to pay.

It was embarrassing and not the first time it had happened. I had just got back from a two-day business trip to India a few days before, where the card refused to work. Since then, shop assistants had been looking at me with alarm every time I tried to pay for an item. Some would ask for another card, others would say, ‘There seems to be a problem here.’

Like most lazy people, I convinced myself the card was just old and kept putting off calling the bank as it still worked at UK cash machines. Only when a letter arrived in the post yesterday from my bank, asking me to call them urgently because they had found ‘some unusual activity’ on my account, did I begin to fit the pieces together.

Like William Smith in Orwell's dystopian classic, I began to realise Big Brother was watching. But, unlike Smith, was glad of it.

After chatting about fraud with a representative from Visa earlier this year, I had written an article about how we are going to have to let our banks know when we are planning to travel abroad in future if they are to effectively combat fraud on our accounts. 

Annoyed that you have lost thousands from your current account because three transactions were made in the space of a week on three different continents? Well apparently this kind of thing is going to happen less and less as banks crack down on fraudulent transactions but simply cutting off access to your account if they sense anything suspicious.

My bank didn’t know I was going to India and so decided to cut off access to my funds in case I was a fraudster. And I’m glad they did! It was an inconvenience, but it shows they’re watching. That they care. That they’re doing something proactive about this.

The nice operator I spoke to from the bank’s Group Security & Fraud office told me they couldn’t guarantee it wouldn’t happen again, even if I did notify them before traveling abroad – which is a bit rich actually – but what of it? As long as my account is safe, I don’t really mind.

Only having one bank card (I don’t really believe in credit cards), may be a problem so I think I’ll have to acquire more plastic, but at least I’ll sleep easily at night.

Expect more building societies to fail

Is anyone else confused by the events of the past few weeks, with building societies dropping like flies because of esoteric investments in all kinds of financial jiggery-pokery?

But aren’t building societies supposed to be the comforting place down from the pub where locals stick the few bob they can’t do without in their dotage, the safe haven that doesn’t really offer fantastic deals but is at least a million miles from all those lyin’ n’ cheatin’ Square Mile fat-cats and all their financial learn’n?

It appears not.

Barnsley Building Society had to be bailed out by Yorkshire this week because it went and, y’know, lost £10m in some Icelandic banks that happened to go bust recently. Woops. Then there was Derbyshire, which had to be rescued by Nationwide after it had a £17m cock-up on commercial loans, and Cheshire, which also turned to Nationwide with watery-eyes after it lost £11.5m on a single commercial property loan.

The rest of the country has known that commercial property is a no-go for the past year, but apparently not Cheshire. Add Chelsea Building Society into the mix, which had £55m deposited with Icelandic banks, and you’ve just got to ask yourself – what on earth is going on here?

Correct me if I’m wrong (and I know you will), but I thought the whole point of a bank was to provide safe savings by keeping savers’ money on deposit, while lending the same money to other people at a higher rate, thereby making a profit? If there isn’t quite enough money deposited from people who walk in off the street, then fine, turn to the money-markets (i.e. other banks), borrow from them at a higher rate and earn less of a profit from the money lent on to your customers.

But what boffin at each of these building societies sat down at their computer one day and thought, ‘Oh look, this Icelandic online account offers a rate over 7%. I’ll just bung a couple of mill in there and make a few extra quid on my margins. Who’ll know?’

And given the current financial climate, commercial property is surely classed as a speculative, risky investment, especially at figures so high the building society’s reserves are not enough to cover them. In fact, that any single deposit/investment that is so large it threatens the whole institution if it falls through is therefore risky.

‘But we’ve got so much money to spread around we have to put tens of millions in various bank accounts,’ some may say. Well, actually, no you don’t. Leave it in your own coffers, lend to your members, don’t reach for the stars if you’re going to pull every muscle in your body and end up in intensive care.

And this should be even more true for building societies since they’re supposed to only act in their members’ best interests and not go off on a mad-cap tangent, chasing insane profits like banks.

What would the founders of the building society network think of this state of affairs?
The city watchdog, the Financial Services Authority, has been watching the mutuals closely after criticising the sector in May for sloppy risk controls. They were right to do so.

As Britannia is apparently in talks to sell itself to the Co-operative Bank, I think its safe to say more building societies will follow suit. They may be hard to identify (you can check your building society's safety using our guide), since the majority aren’t going to hire cheerleaders to spell out their liabilities in letters at the end of their financial year. We’re all ‘well capitalised’ thank you very much.

But if it’s this easy for single, failed investments to bring them down, don’t think the name over the door of your local society is a sure-bet just yet.

Savings compensation just got a lot more confusing…

Now that Bradford & Bingley’s savings book has been bought by Spanish bank Santander and 100% backed by the Government, the issue of savings compensation has got even more complicated. Great, just what we all need.

When the Northern Rock crisis broke last year, the Financial Service Authority’s website had a comprehensive list of bank ownership to help those looking to safely distribute their savings up to the maximum limit with each bank. The only problem is ownership is irrelevant in this case; what’s important is whether a banking group has separate compensation licences for each of its subsidiaries, not the fact that it owns them. By the way, you can get a full list of banks’ compensation licences on our site.

In addition to the whole savings licence farce, there’s also all the complication surrounding the ‘passport’ compensation fandango for foreign banks. Lucky, we break it all down for you in our comprehensive savings guide.

Add to that the confusion over whether HBOS and Lloyds TSB will have separate compensation licences following their merger and if this will eventually also be the case with Santander, which owns Abbey, and its B&B savings accounts.

But that’s not the end of it all: there’s also the mish-mash of different compensation levels for different institutions. So its £35,000 per individual, per banking institution (£70,000) for joint accounts – but all savings with Northern Rock and National Savings & Investments are 100% covered. That 100% coverage now also seems to include B&B savings, albeit temporarily.  

Then there’s Post Office customers and UK customers are Bank of Ireland and Anglo-Irish bank, which are covered up to £80,000 following changes to the Irish savings compensation scheme last week.

How on earth are savers expected to navigate this minefield? It would almost be easier to get a qualification in investment and enter the banking sector oneself.

Unsurprisingly, even the most ‘clued-up’ savers with enough time on their hands to swot up on all this material are finding it difficult to make sure their various nesteggs are protected.

I received a call from a reader last week. Her name was Mrs Shepherd, a retiree living in London. She was calling to tell me that she had been doing some research into her savings compensation coverage and had hit a brick wall.

She had read on This is Money that Ireland has raised its savings compensation limit to €100,000 (£80,000) from €20,000 and that this would benefit UK customers of Irish banks.

As well as Post Office customers, I thought – and I emphasise I thought – this included those of Anglo-Irish Bank, Bank of Ireland and Allied Irish Bank as I had checked with the Financial Services Compensation Scheme (FSCS) about whether UK customers of Irish banks based in the UK would benefit from the increased coverage. I was told they would.

Mrs Shepherd called her local AIB Bank in London on this basis and said she wanted to increase her savings up to the £80,000 limit. The guy at the bank hadn’t heard about it. Anyway, he said that he thought AIB’s UK branches wouldn’t be affected by such a move because it has separate compensation licence to the parent Irish bank and is only covered by the UK’s £35,000 limit.

She finished the conversation and gave me a call. I then give the FSCS a call back. They said they can comment on savings licences or ‘authorisation’ in general but cannot comment with authority on the specific authorisation of individual banks. That’s the job of the FSA, I’m told.

So I give the FSA a call and Allied Irish Bank doesn’t appear on their register. They’re not sure which scheme it’s covered by. The next day AIB gets back and says its covered only by the UK’s £35,000 limit.

When I tell Mrs Shepherd this, she laughs. Although she’s worried about the UK banking system and wants her savings entirely covered, she seems to be pretty much on the ball, with pockets of cash distributed among different banks up to the £35,000 barrier.

It’s a pity the banking system itself isn’t so savvy. How on earth is the average customer going to know how to distribute their savings when the industry itself is incapable of giving any clear and concise guidance?

The Tories are right to call for an increase in the compensation limit to £50,000, but first we need to look at how utterly frustrating and complicated this savings compensation system is.

Every person who is slightly concerned about their savings cannot spend as much time as a personal finance journalist trying to get their head around this.

And actually, come to think of it, not every journalist can spend this much time on it either.

As banks topple left, right and centre – with more expected to follow suit – it’s about time the industry pulled out its finger and worked in concert with the Government to clean this mess up.