The Financial Climate – Your Questions Answered

As the world economy goes through some pretty testing times, it's hardly surprising that many of you have questions about the safety of your savings and investments. We've asked our experts to answer a few of your most common questions.

How do I know my money is safe with The Co-operative Bank p.l.c.?

Our firmly embedded responsible lending policy reflects our belief that as customers and members, it's your money first and foremost, and you have a right to expect good stewardship.

The Bank's financial position is strong, which is reflected in our credit ratings. We also have one of the highest liquidity ratios in the marketplace – that is, our assets are relatively easy to convert into cash should we need to. On top of this the Bank is well capitalised, i.e. we have a good cushion of reserves.

The Bank maintains a prudent approach to lending, and its underwriting and arrears management processes are subject to regular review and improvements. The Bank's loan books are high quality with low Loan to Value ratios, which provide significant protection against future falls in property values.

Find out more in our financial results.

Will The Co-operative Bank p.l.c. encounter problems if the UK has a recession?

Although we are not immune from the economic situation, our performance in the first half of this financial year shows that as a business, we are achieving steady growth.

We are also investing in our business, to ensure that we are able to provide products to our customers and members that are absolutely in line with our co-operative principles of value, fairness and social responsibility. We're confident that this will help our business grow further still.

I have a mortgage with The Co-operative Bank p.l.c. Is what happened to Northern Rock or HBOS likely to happen to you?

No. A crucial difference between ourselves and many of our competitors is that we are not reliant on the financial markets in order to lend to customers. Our lending is fully funded by customer deposits, leaving us a good deal less exposed to the vagaries of the market than many of the major lenders.

The HBOS situation in particular highlights the risks to businesses whose shares are traded on the stock market, where they can become exposed to speculators. Our business structure means that we are accountable to The Co-operative Group and its members and aren't at the mercy of speculators who have no affinity with our business.

How will what's happening affect my pension/investment with The Co-operative Investments?

The Co-operative Investments is in a sound financial position. We have good levels of financial capital to cover our liabilities and we have always avoided the more risky financial practices that have caused difficulties for other financial service organisations in recent months.

Of course all investments carry an element of risk; in particular investments linked to stocks and shares are clearly influenced by movements in these markets. This type of risk is an essential part of the investment and is present whichever company you invest with.

It is very important to keep in mind that investments should normally be taken out for the medium- to long-term so it is essential to take a considered view and not make snap decisions. We always recommend that you regularly review your investments; if you have any concerns you should speak to your Financial Adviser. Any guarantees that have previously been made on a pension or investment will remain: while anyone with a pension that is currently being paid out will not be affected by any movements in investment markets.

Does the current crisis affect our ability to pay General Insurance claims?

We typically pay claims from the premiums we receive in any given month so there is no real risk to our ability to pay claims on an ongoing basis. In the event of a major catastrophe where the cost of claims may exceed premiums received, we have a substantial portfolio of government bonds, which are very liquid and would enable us to meet our obligations. So we do not envisage a material risk to our ability to pay claims.

Our ongoing GI Growth programme is helping us to improve our capacity to manage major claims without compromising the business.

What is the Financial Services Compensation Scheme?

The Financial Services Compensation Scheme is the UK's compensation fund of last resort for customers of financial services firms.

The Financial Services Compensation Scheme pays compensation if an authorised financial services firm is in default, meaning it is unable, or likely to be unable, to pay claims against it. This will generally be because it has stopped trading and is insolvent – for example, it doesn't have enough money to cover what it owes to its customers and creditors.

The Scheme will pay compensation to customers for financial loss. The amount paid will depend on the basis of the customer's claim.

There are maximum limits that apply to each claim. These limits are per person (per firm and type of claim). Find out more.

The Scheme is free to consumers and funded from levies imposed on regulated firms.

It's important to remember though that compensation will only be paid if a firm is in default.

Which parts of CFS are covered by the Financial Services Compensation Scheme?

The following firms are individually covered by the Financial Services Compensation Scheme:

Is my money covered under the Financial Services Compensation Scheme?

Yes, provided you are what's called ‘eligible.' This means private individuals, some small businesses and anyone who has a compulsory insurance policy.

In the event that a firm is unable to cover claims against it, the scheme provides compensation to customers of up to a limit of £50,000 to depositors for the total of their deposits with an organisation.

Find out more about the compensation scheme and The Co-operative Financial Services.

Is it true that CFS is having exploratory talks with Britannia Building Society?

Yes it is. In light of anticipated legislative changes that will make it easier for different types of mutuals to work together, exploratory talks are taking place.

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