Twelve years on, we've just received the final recovery payment from the 2008 banking crisis through the administration of Heritable Bank. As we wrap up our involvement in this extraordinary period in the industry's history, we explain the vital role our recoveries process plays.
By Jess Spiers
Published: 21 September 2020 FSCS news
The financial crisis of 2008 saw the unthinkable happen: long-established banks that were household names collapsed overnight, causing chaos for their customers.
FSCS protected these customers by transferring their accounts or paying them compensation. What may be less well-known though, is the work we did behind the scenes over the years to claim back, or 'recover', money from the failed banks.
We recently received the final recovery payment from the banking crisis through the administration of Heritable Bank, so it seems a fitting time to put the spotlight on our recoveries process.
What is a recovery?
Arecoveryis a legal claim that FSCS makes to get back the money we pay in compensation to our customers. A crucial part of our job is to recover money from failed firms, and any relevant third parties, wherever possible.
Once we've paid a customer compensation, their legal rights are transferred to FSCS. This allows us to try and get back some, or all, of the costs of compensation. Our customers benefit as it means they get their money back much sooner through FSCSthan if they had to wait for the full insolvency process to complete. It also benefits our levy payers, as the recoveries we make go towards reducing the levy.
How do recoveries help to reduce the levy?
The banking crisis illustrates how recoveries can cut downhow much our levypayers contribute. During the crisis, we had to borrow a large amount of money from HM Treasury so we could pay compensation quickly and not leave customers out of pocket.
The levy had to fund the interest on this loan while we made recoveries. The money we recovered from the failed banks paid back the vast majority of the money we borrowed:
- We paid out£20.9bnin compensation as a result of the crisis.
- We recovered£20bnfrom the failed banks.
- The levy covered the £0.9bn shortfall and £3.5bn interest.
Now that the loan has been repaid in full, the total levy for deposits firms is £17m this year – less than 2 per cent of the £861m peak in 2014/15.
The history
In Autumn 2008, in the midst of the financial crisis, five depositinstitutions collapsed affecting more than 4 million retail bank accounts in the UK. The most prominent were Bradford & Bingley and Icesave(the UK internet branch of Landsbanki, an Icelandic bank).
FSCS played a pivotal role in protecting the customers of those banks. From the seamless transfer of the accounts of 2.5m Bradford & Bingley customers to Santander – with no changes to their account details or terms – to the online claims process developed specifically for more than 200,000 Icesave customers.
The 2009 House of Commons Treasury Committee report 'Banking Crisis: dealing with the failure of the UK banks' recognised the work we did throughout the crisis:'The FSCS deserves praise for the way in which it fundamentally increased its response to the unprecedented compensation claims arising from the default of five banks in just a few months. We are particularly impressed with the variety of innovative solutions deployed by the FSCS to suit the particular challenges facing them.'
Read the finer details of ourrecoveries process.
FAQs
In response to the banking crisis, the FDIC had to deal with challenges relating to bank supervision, the management of the Deposit Insurance Fund, and the resolution of failed banks—challenges similar to those the FDIC had faced in the banking and thrift crisis of the 1980s and early 1990s.
Was anyone held accountable for 2008 financial crisis? ›
Kareem Serageldin (/ˈsɛrəɡɛldɪn/) (born in 1973) is a former executive at Credit Suisse. He is notable for being the only banker in the United States to be sentenced to jail time as a result of the financial crisis of 2007–2008, a conviction resulting from mismarking bond prices to hide losses.
How many banks were closed during the 2008 housing crisis? ›
In 2008, 25 banks failed, according to the Federal Deposit Insurance Corporation's database. Included in that count is Washington Mutual, the largest bank failure in US history. Over the three years that followed, nearly 400 banks failed.
Have we recovered from 2008? ›
The recession lasted 18 months and was officially over by June 2009. However, the effects on the overall economy were felt for much longer. The unemployment rate did not return to pre-recession levels until 2014, and it took until 2016 for median household incomes to recover.
Was the FDIC created in response to bank failures? ›
The FDIC was established in 1933 in response to widespread bank runs and bank failures that inflicted severe damage on the U.S. economy. Although many banks have failed since, with the advent of FDIC insurance all insured deposits have been fully protected.
What was the FDIC trying to solve? ›
The FDIC, or Federal Deposit Insurance Corporation, is an agency created in 1933 during the depths of the Great Depression to protect bank depositors and ensure a level of trust in the American banking system.
Who was most responsible for the 2008 financial crisis? ›
President of S&P Kathleen Corbet. While other rating agencies followed similar practices to Standard & Poor's in the run-up to the crisis, Corbet was the most high-profile of the agency leaders. Time Magazine named her one of the top 25 people to blame for the financial crisis.
Did anyone go to jail for causing the financial crisis? ›
One. The banks got slapped with large fines for their role in the financial crisis, but only one banker went to jail.
Who suffered the most from the 2008 financial crisis? ›
Comparing the percent changes in the medians and means within each subgroup, the SCF reveals that families that were young or middle-aged, less-educated, and members of historically disadvantaged minorities generally suffered larger wealth declines between 2007 and 2010 than did other families.
What banks are crashing in 2023? ›
Among these banks were Silvergate Bank, Silicon Valley Bank, and Signature Bank, which collapsed in March 2023 Additionally, undercapitalization, loan quality, and losses on investment securities are common reasons why banks may fail.
There are 4 bank failures in 2023. See detailed descriptions below.
Are banks going to fail in 2023? ›
2023 may go down in the history books as the year America lost faith in its banks. Over the course of a few weeks in the spring of 2023, multiple high-profile regional banks suddenly collapsed: Silicon Valley Bank (SVB), Signature Bank, and First Republic Bank.
How long will 2023 recession last? ›
ITR Economics is forecasting that a macroeconomic recession will begin in late 2023 and persist throughout 2024. Business leaders recently had to lead their companies through the recession during the COVID-19 pandemic, and some were even in leadership positions back in 2008, during the Great Recession.
What was the worst economic crisis in the US history? ›
The Great Depression was the worst economic crisis in modern history, lasting from 1929 until the beginning of World War II in 1939. The causes of the Great Depression included slowing consumer demand, mounting consumer debt, decreased industrial production and the rapid and reckless expansion of the U.S. stock market.
Could the 2008 crisis happen again? ›
To wrap it up, though the world might witness financial problems in the coming years, probably because the recession is part and parcel of an economic cycle, the great financial crisis of 2008 was a phenomenon in itself and is most likely not going to occur again. Happy Investing!
What did the FDIC do in 2008? ›
Emergency Economic Stabilization Act of 2008 Temporarily Increases Basic FDIC Insurance Coverage from $100,000 to $250,000 Per Depositor.
Did FDIC work in 2008? ›
During 2008, 25 FDIC-insured institutions failed.
The 2008 total includes IndyMac Bank, FSB, Pasadena, CA, which was the fourth largest failure in the FDIC's history and Washington Mutual Bank, Henderson, NV, which was the largest single failure in FDIC history.
Did the FDIC seize Silicon Valley Bank assets in largest failure since 2008? ›
The FDIC ordered the closure of Silicon Valley Bank and immediately took possession of all its deposits on Friday. The bank had $209bn in assets and $175.4bn in deposits at the time of failure, the FDIC said in a statement. It was unclear how many of the deposits were above the $250,000 insurance limit.
How did the creation of the FDIC help end the banking crisis? ›
Federal deposit insurance became effective on January 1, 1934, providing depositors with $2,500 in coverage, and by any measure it was an immediate success in restoring public confidence and stability to the banking system. Only nine banks failed in 1934, compared to more than 9,000 in the preceding four years.
