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Depositors to get preference
RETAIL depositors will become banks’ most senior creditors under plans drawn up by the Independent Commission on Banking (ICB).
The commission said that it favours introducing a “depositor preference” in the debt hierarchy, “ranking (at least some) depositors above other unsecured creditors in a bank insolvency”. The aim is to minimise the likelihood of a “crisis of confidence” that can cause a bank run.
The commission admits that giving depositors such privilege could “increase the private cost of liabilities subordinated to deposits”, even for issuing senior debt, but says that the “social benefit” is worth it.