BoE governor advocates bank fund to protect savers’ deposits

by Gill Montia

Story link: BoE governor advocates bank fund to protect savers’ deposits

Bank of England Governor, Mervyn King, is proposing that UK banks should contribute to a fund that could be used to guarantee savers’ deposits.

While giving evidence to the Treasury Select Committee, Mr King suggested that lenders should make substantial contributions over 10 years to provide a fund of several billions of pounds.

He stressed the importance of action being taken now rather than when the next problem arises because the lack of a 100% cash guarantee contributed to last year’s run on Northern Rock.

The governor would also like to see banks’ contributions based on the element of risk in their business.

Currently, the Financial Services Compensation Scheme guarantees the first £35,000 of savings for an individual depositor.

Under the current regime, the tax payer initially funds the guarantee.

The Treasury has already indicated that it will demand banks fund a deposit protection scheme and is also reviewing the level of guarantee, which is likely to be increased to £50,000.

Banks are generally in support of the Treasury’s plans for reform but have raised concerns about proposals for the compensation be paid out within seven days, asserting that the timescale is too short.