Why Bank of England is looking to bolster UK protections for savers
When Andrew Bailey revealed in a speech that the Bank of England was working on updating Britain’s deposit insurance guarantee scheme, which gives government protection on savings up to £85,000 in the event of a bank run, it was with one eye on the recent shocks, and the other on events from 15 years ago.
Northern Rock, Bradford & Bingley, and Icesave may sound like names from another era, but the memory of what happened in 2007 and 2008 still reverberates around the Bank’s Threadneedle Street offices to this day.
The recent collapse of Credit Suisse and Silicon Valley Bank has brought back some very unhappy memories – situations that central bankers do not wish to find themselves in again.
The last increase in the amount of savings protected under the financial services compensation scheme (FSCS) was in 2010. Bailey has, this week, made the case for increasing it from £85,000 – noting it is far lower than the $250,000 (£200,000) offered in the US.
Up until the 2007 collapse of Northern Rock, when panicking customers queued outside branches in a desperate attempt to take out their savings, the FSCS only promised to repay 80% of the first £35,000 held in a failed bank or building society.
At the time, to prevent a possible riot, the government was forced to guarantee that no saver would lose out from Northern Rock’s failure. The FSCS would in future guarantee 100% of all savers deposits up to the £35,000 limit.
However, an even bigger test came a few months later when the muchlarger Bradford & Bingley collapsed. Plenty of older customers, in particular, had far larger sums than £35,000 in their accounts – money they were relying on to pay for their retirement. Having bailed out Northern Rock, it was unthinkable that B&B savers
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