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Therefore, you cannot eliminate [[credit exposure]] to a person who holds “your” [[money]]. If someone else holds it, it isn’t ''your'' [[money]]. That person owes you an equivalent sum. Event if she has physically and permanently put it aside – that is, she has taken an equal amount of cash out of circulation and put in a vault or something – ''and'' the [[debt]] represented by that cash payment benefits from some kind of statutory protection against claims from other [[creditor]]s there is still some basic credit risk. Even this only amounts to a statutory preference as against the holder which defeats claims of lower-ranking creditors. | Therefore, you cannot eliminate [[credit exposure]] to a person who holds “your” [[money]]. If someone else holds it, it isn’t ''your'' [[money]]. That person owes you an equivalent sum. Event if she has physically and permanently put it aside – that is, she has taken an equal amount of cash out of circulation and put in a vault or something – ''and'' the [[debt]] represented by that cash payment benefits from some kind of statutory protection against claims from other [[creditor]]s there is still some basic credit risk. Even this only amounts to a statutory preference as against the holder which defeats claims of lower-ranking creditors. | ||
===But what about [[client money]]?=== | |||
We have much to say about [[Client money|client money elsewhere]]. But the [[beneficiary]] of [[client money]] protection has no [[credit risk]] to the person offering [[client money]] protection because that person never holds the cash in question. It is instead placed on deposit with a third party [[bank]]. The client ''does'' have full credit risk to that third party bank. This tends to suprise those clients who have the dim impression that client money protection is some kind of patronus charm of cloak of mithril, protecting their little pot of money against the machinations of all evil spirits. Why no, good sir: it merely ''changes'' the evil spirit to whom your pot of money is exposed, ideally just to a ''less'' evil(ref>I.e., better capitalised and prudentially regulated.</ref>, banking type of spirit. | |||
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