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Bank savers to have first £50,000 protected
Joe Murphy1 Jul 2008
Savers who lose money when a bank goes under will be given compensation within a week.
The fast-track payouts were proposed by Chancellor Alistair Darling today to help repair confidence after the Northern Rock crisis.
He also aims to raise the amount of money protected from the current £35,000 to a new ceiling of £50,000.
It means typical savers will have all their money safely in hand eventually, with initial payments made within days, instead of months.
Mr Darling believes more generous protection will cut the risk of panic if a bank is rumoured to be in trouble. Long queues of savers outside Northern Rock branches last September became symbolic of the first bank run in Britain for 150 years.
In another move that will cut the expense for the banks - who fund payouts - he backed away from ordering them to pre-load a compensation fund in case of future problems. The banks said making them pay up-front would divert vital capital away at a time when they were already under pressure from the credit crunch.
Instead, the new scheme will borrow money from the public sector, if necessary, to enable quick payments.
The British Bankers' Association was lukewarm about the proposals. It said: "To focus on a specific amount of deposit or protection is to miss the 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 crisis."
The Chancellor has said the Bank of England will also be given a new statutory remit to protect financial stability under the reforms. Final details will be announced in the autumn.
American Treasury Secretary Hank Paulson says the US and its trading partners need to rethink the way financial institutions are regulated following the collapse of several firms.
In a speech in London tomorrow he will emphasise the need for market discipline and a "rethink of the resolution process for institutions when there is government intervention".
