Customer Savings Set To Be Safer In UK Banks
Chancellor Alistair Darling has proposed new measures to protect savers in the event of a bank falling in financial difficulties.
The plans are intended to increase public confidence in the banking system following the near collapse of Northern Rock in September last year.
As part of the plans, the threshold of deposit guarantee is expected to rise by £ 35000 to £ 50000.
Any changes will come into force in autumn or early 2009.
The chancellor has submitted its proposals in writing to the House of Commons, in preparation for a consultation period.
The measures are not set to costs the banks cash in advance, which only be addressed if something goes wrong.
Need for Speed
It calls for an increase in the current system of deposit protection to be changed after the problems in Northern Rock led to a run on the lender with customers lined up to withdraw their savings.
If a bank run into difficulties, the words of ‘current system means that it may take weeks or even months before getting the savers their money.
Despite saying that banks would not have to put immediately into a cash compensation fund, the Treasury is keeping options open and could insist on pre-financing in the future, whether it was appropriate.
However, the British Bankers Association (BBA) has claimed that up front payments into compensation fund could bind capital and would be a further drain liquidity on the already stretched credit crunch.
“It ‘important that people can quickly reach their cash”, Angela Knight, BBA, told the BBC.
Ms. Knight said that banks had always and would continue, to pick up the cost of the system.
He added that there was a strong banking sector in the UK, but that the refund of deposits should be given priority if a bank went under.
In its proposal, the chancellor said the government was committed to savers to obtain at least a portion of their funds “within seven days of a bank to strike problems with the balance paid in the” after a few days “.
‘Vital’ situation
During the crisis Northern Rock, many savers questioned whether £ 35000 was a sufficient threshold in terms of compensation.
The National Consumer Council (NCC) repeated concerns as on finding out the the £50000 figure had been chosen.
Jill Johnstone spokesman said the NCC was concerned about the people who would still lose, although the Financial Services Authority (FSA) is to study ways to cover those whose savings are greater than the limit set for compensation.
However. Ms. Johnstone has welcomed the plan for quick payment of compensation.
“It ‘much better that the situation is currently,” he said. “A bank account is so vital to everything we do in our lives.”
‘No guarantee’
Only the document outlines the issues of consultation and so changes could be made in the coming months for the plans.
The system was amended to facilitate the crisis Northern Rock
Mr Darling said: “No regulatory system can or should prevent the failure of each institution, but we must do everything possible to prevent problems that could pose a wider threat to stability”.
A large part of 167 pages report goes into detail about how you’re planning to prevent another scenario Northern Rock.
There will be consultation on whether banks that receive a bail-out by the Bank of England should have declared this immediately.
The proposal also seeks to bring construction companies in a scheme that allows the authorities to take control of a financial institution if it is to be judged and in the absence of other options are insufficient.
Conservatrice Treasury spokesman Philip Hammond welcomed the initiatives, arguing that they copied his party proposals.
He said that pre-financing of the compensation scheme was not an option as it would only worsen the banks’ current lending squeeze.
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