Calls for savers who put their money into Icelandic banks to “pay the price” may sound harsh, but they raise important issues.
As MP John Maples points out, there was no conceivable reason for British savers to bank with Icesave instead of their local Nat West – except that Iceland’s bankers were offering slightly higher interest rates.
But there had to be some reason why British banks didn’t attempt to compete and offer the same level of interest. Anyone who sent their money to Iceland was gambling that the Icelandic banks were right and their British counterparts were being too cautious or too greedy to offer the same level of service.
If their gamble paid off, they could expect to enjoy a higher return on their savings than neighbours who were more conservative with their money.
The thing about gambling, however, is that if you lose you are expected to take it on the chin. And it would be perfectly reasonable to ask those who had large sums deposited with Iceland to accept that they stand to lose at least some of their money.
That’s the theory. And it sounds reasonable, at least with hindsight.
However, putting money into Icesave probably didn’t feel like a gamble at the time, even if it was.
Saving with a bank isn’t like buying shares or even a pension. This was a legitimate and respectable bank in a developed nation, advertising its services and trading freely in the UK.
Up until very recently, most of us assumed that money in any bank of this type was safe. The idea of weighing up the likelihood of a bank collapsing wouldn’t have crossed our minds – they simply didn’t collapse.
It is very hard to feel anything but great sympathy for those who lost their money, and to sympathise with the idea that the taxpayer should bail them out.
But there is another aspect to consider, and that is the effect on banks and savers in the future.
One silver lining in what has happened might be that savers will, at least, take more responsibility for their money in the future.
But if it transpires that you can expect the taxpayer to bail you out, then there is no reason for any of us to avoid high-interest, high-risk banks in future – potentially forcing more conservative banks to indulge in risky behaviour as they attempt to compete.