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]

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.

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 which︂ has a positive interest-bearing deposit facility.

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

 

[Tax Cow]

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

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

 

[Martin Everson]

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

https://www.offshorecorptalk.com/th...e-is-it-a-good-offshore-bank.19847/post-81115

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

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

 

[Martin Everson]

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]

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.

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 account︇ for EUR at HSBC UK.
Novobanko is rated as a quite unsafe bank. HSBC UK︈ is quite good, as far as I can see.

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

 

[Martin Everson]

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-Bank︀ holds USD with Novobanko which holds the USD at XYZ US Bank in America that︁ has a direct Fedwire connection.

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

EPB is‌ still around you mean....lol? eek¤%&

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 smi(&%.

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 from︀ St Vincent to Puerto Rico to avoid CRS and offering banking to criminals is dead︁ end activity....lol. What banks do this any more?😕

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

Will put this under EPB thread...thx