B&B rescue increases FSCS levy for building societies

by Gill Montia

Story link: B&B rescue increases FSCS levy for building societies

New laws introduced as a result of the collapse of Northern Rock one year ago mean that the taxpayer will not pick up the entire cost of the rescue of Bradford & Bingley (B&B) and its suspect £41 billion mortgage book.

The banking sector will be responsible for part of the bill because the Bank of England has loaned the Financial Services Compensation Scheme (FSCS) £14 billion to cover the guarantee to B&B’s 2.6 million savers.

The FSCS is funded by a levy on financial institutions which will therefore be liable for interest on the loan.

The Treasury has now revealed that interest will total £450 million in the first six months of the loan and all UK financial institutions that take deposits will be paying a heavier levy as a result, including the UK’s building societies.

According to a report by the BBC, Britain’s building societies will collectively pay around 18% of the cost.

This has prompted a strong response from Adrian Coles, director general of the Building Societies’ Association (BSA), who has called the measures unfair.

Building societies have traditionally been more conservative in managing their businesses that banks; according to the BSA, no society has failed since its records began in 1945.