Increased protection planned for savers

Plans to increase the protection available to consumers who lose money when a bank collapses were announced today.

The Chancellor Alistair Darling is calling for people who lose their savings to be paid compensation within a week, while the amount of money that is protected could be increased from £35,000 to £50,000.

But he stopped short of calling for the Financial Services Compensation Scheme (FSCS) to be pre-funded, instead saying it would have the power to borrow money from the public sector to enable it to pay savers quickly.

The banking industry had expressed concerns about earlier proposals to pre-fund the scheme, warning that this would divert vital capital away from banks at a time when they were already under pressure from the credit crunch.

But the Government decided to keep its options open, saying it would include powers in the legislation that would enable it to introduce a pre-funded element if this was thought to be appropriate in the future.

The proposals aim to increase confidence in the UK's banking system following the near-collapse of Northern Rock last year, which sparked the first run on a bank for 150 years.

The Government plans to introduce legislation on the issues this autumn, following a further period of consultation.

It said today that enabling people to have quick and ready access to their savings was "crucial" for them to be able to continue paying bills and carrying out everyday financial transactions.

Under the current system it typically takes around one month to process claims relating to relatively small firms that fail, while consumers who lose money held by bigger institutions can face waits of several months for compensation.

But under today's proposals people would receive at least a portion of their money after seven days, with the balance paid within the next few days.

The Government said it would be introducing a range of measures to help speed up the process, including no longer requiring consumers to lodge a claim in order to get compensation.

Much of the consultation document covered new rules to be introduced to reduce the chances of another bank running into problems.

These include increasing the FSA's powers to obtain and share information on banks with the other authorities, as well as introducing legislation to enable the authorities to take control of a bank or building society that is judged to be failing.

The Government also outlined plans to increase the role played by the Bank of England in maintaining financial stability, including creating a Financial Stability Committee, as well as moves to ensure there is co-ordination between the Bank, Treasury and FSA.

It is also consulting on whether banks which receive liquidity support from the Bank of England should have to disclose it immediately.

Mr Darling said: "No system of regulation can or should prevent the failure of each and every institution, but we must do everything possible to prevent problems which could pose a wider threat to stability.

"The challenge is to ensure that the authorities can act quickly and decisively where necessary to support financial institutions. These proposals will give the authorities the full range of powers they need."

The British Bankers' Association said it supported the need for the public to be confident that their savings were safe.

But it said: "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.

"We have been talking with the Government and regulators about intervening earlier should a bank get into difficulties to prevent a banking problem becoming a crisis."

Liberal Democrat shadow chancellor Vince Cable said: "If there is to be confidence in the banking system it is critical that there is rapid repayment from the Financial Services Compensation Fund when a bank goes under.

"The only way this can happen is for the banks to make 'up front' payments into the fund so that there is a pool of funds to draw on.

"We must be clear that deposit protection is the responsibility of the banks, not the taxpayer."

Vera Cottrell, personal finance campaigner at consumer group Which?, said: "These proposals still won't offer enough protection to people with savings.

"Payouts must be faster than the proposed seven days to minimise the disruption to people's lives."

Martin Lewis, creator of MoneySavingExpert.com, said: "Any rise in the amount (covered by the FSCS) is very welcome, hopefully not because it'll ever be practically needed, but more importantly, to persuade savers that their cash is safe.

"With growing mutterings about keeping cash under the mattress, over the last year we've run the risk of returning to the Victorian era. This latest announcement should help quell fears."

Peter Vipond, director of financial regulation at the Association of British Insurers, said: "It is vital that any change in legislation should not undermine the FSA's role of supervising financial institutions and promoting financial stability.

"There has to be clarity in the roles of the Treasury, the FSA and the Bank of England.

"Depositor protection is an important element in restoring confidence and making payments faster and raising awareness of the protection available will help. However, the best form of depositor protection is top-class supervision."



Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Collections Agent

    £14000 - £16000 per annum: Recruitment Genius: This company was established in...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + competitive: SThree: SThree are a global FTSE 250 ...

    Reach Volunteering: Trustees with Finance, Fundraising and IT skills

    Voluntary and unpaid, reasonable expenses reimbursable: Reach Volunteering: St...

    Day In a Page

    Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

    How Isis profits from destruction of antiquities

    Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
    Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

    'If we lose touch we’ll end up with two decades of the Tories'

    In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
    Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

    The Arab Spring reversed

    Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
    King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

    Academic claims King Arthur was real - and reveals where he lived

    Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
    Who is Oliver Bonas and how has he captured middle-class hearts?

    Who is Oliver Bonas?

    It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
    Earth has 'lost more than half its trees' since humans first started cutting them down

    Axe-wielding Man fells half the world’s trees – leaving us just 422 each

    However, the number of trees may be eight times higher than previously thought
    60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

    60 years of Scalextric

    Model cars are now stuffed with as much tech as real ones
    Theme parks continue to draw in thrill-seekers despite the risks - so why are we so addicted?

    Why are we addicted to theme parks?

    Now that Banksy has unveiled his own dystopian version, Christopher Beanland considers the ups and downs of our endless quest for amusement
    Tourism in Iran: The country will soon be opening up again after years of isolation

    Iran is opening up again to tourists

    After years of isolation, Iran is reopening its embassies abroad. Soon, there'll be the chance for the adventurous to holiday there
    10 best PS4 games

    10 best PS4 games

    Can’t wait for the new round of blockbusters due out this autumn? We played through last year’s offering
    Transfer window: Ten things we learnt

    Ten things we learnt from the transfer window

    Record-breaking spending shows FFP restraint no longer applies
    Migrant crisis: UN official Philippe Douste-Blazy reveals the harrowing sights he encountered among refugees arriving on Lampedusa

    ‘Can we really just turn away?’

    Dead bodies, men drowning, women miscarrying – a senior UN figure on the horrors he has witnessed among migrants arriving on Lampedusa, and urges politicians not to underestimate our caring nature
    Nine of Syria and Iraq's 10 world heritage sites are in danger as Isis ravages centuries of history

    Nine of Syria and Iraq's 10 world heritage sites are in danger...

    ... and not just because of Isis vandalism
    Girl on a Plane: An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack

    Girl on a Plane

    An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack
    Why Frederick Forsyth's spying days could spell disaster for today's journalists

    Why Frederick Forsyth's spying days could spell disaster for today's journalists

    The author of 'The Day of the Jackal' has revealed he spied for MI6 while a foreign correspondent