More foolishness at the Post Office

According to the Times, post office savings account holders are not covered by the UK deposit insurance scheme. It turns out that Post Office accounts are managed by the privately owned Bank of Ireland. Therefore, it is the fiscally challenged Irish government and not HMG that will, in theory, end up footing the bill for any future deposit runs.

We are not talking small numbers here. The Post Office has some 2 million customers here in the UK, looking across the cold Irish sea for financial re-assurance.

What would happen if, mercy protect us, the Bank of Ireland failed. We would have frantic queues outside the state owned UK post offices, looking for cash held by a neighbouring country. What would happen next? The treasury and the Bank of England would suddenly wake up to the fact that this deposit run could spread into other banks. Within days if not hours, HMG would have to offer a blanket deposit guarantee.

There is, however, a deeper question here. What was the government thinking when it approved the out-sourcing of post office financial services to a foreign bank. Could they not see the obvious implications of an overseas banking crisis on accounts held at the Post Office. Whether they acknowledge it or not, there is an implicit deposit guarantee on Post Office accounts.

No doubt, out-sourcing Post Office financial services seemed like a good idea the time.