Banks face ‘£10 billion’ rescue

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The Financial Services Compensation Scheme, which guarantees customer deposits up to £35,000 each and is paid for by banks, was triggered by the deal with Santander.

The FSCS borrowed £14 billion from the Bank of England to transfer B&B deposits immediately to Santander.

The Treasury made an additional payment of £4 billion to the Spanish bank to cover deposits above the £35,000 threshold.

Ministers today said the taxpayer will not foot the bill. The £4 billion Treasury loan will be recouped via mortgage repayments on B&B loans now owned by the Government.

The amount borrowed by the FSCS will also be reduced over time by the recovery of funds from the sale of B&B assets now in Government hands.

But the FSCS also looks set to increase the levy it charges all banks so it can meet any shortfall and interest repayments.

A first tranche of £450 million will be repaid in September next year and the loan will be restructured by the Treasury in three years to suit market conditions at the time.

Loretta Minghella, chief executive of FSCS, today said she will call on British banks to contribute.

Analysts suggested the total cost could hit as much as £10 billion.