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The Treasury document
The paper says, "The FSA is considering a broad range of options for possible change. At this stage, the consultation paper is expected to propose as the lead option an increase in the compensation limit for protected deposits to £50,000, on a per person per bank basis. Depending on the result of further work with the banks on per brand compensation, further consideration may also be given to paying compensation on this basis."
The proposal thus addresses one of the key issues in depositor protection - that a number of institutions within the same financial group only offer one level of protection. Some banking groups e.g. Royal Bank of Scotland, register their brands separately, so both your RBS and NatWest accounts, for example, would be currently covered for up to £35,000.
On the other hand HBOS's single registration with the FSCS means all its savings brands come under the one protective umbrella: you might have saved £35,000 with both Halifax and Saga, say, but you will only be compensated the once.
The deposit protection limit was raised to £35,000 in the wake of the Northern Rock debacle. At the time (September 2007) there was a suggestion that it could be raised to as much as £100,000. Chancellor Alistair Darling appears to have quietly swept this suggestion under the table as too expensive to implement. He appears to have faced protests from the banking community, concerned they would have to fund the protection from a levy.
The British Bankers' Association (BBA) responded to the document by saying it "supports the need for the public to be confident that if their bank gets into difficulties their savings are safe and they can get access to their money quickly".
But, said the BBA, to focus on a specific amount of depositor protection is to miss the most important point: it is better not to need it at all. The association believes the UK has a strong and robust banking system and a depositor protection scheme which already protects fully some 96 per cent of depositors. We will continue to work with the Government to ensure the safeguards to the UK's financial stability remain strong, effective and readily understood by the saving public."
Separately, Reza Attar-Zadeh, Director of Savings and Investments at Abbey said, "We welcome news of the proposed plans to increase the Financial Service Compensation Scheme from £35,000 to £50,000. While this is still only a relatively small increase we hope this move will go some way to help boost consumer confidence. While Abbey supports any initiative to restore confidence in the stability of the banking system, Abbey is well positioned, backed by the financial strength of its parent, Santander, a top ten global bank."
14 July 2008 © Moneyextra.com
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