FSA moves to ward off threat of bank runs
BRITISH banks will be obliged to display information in branches about how the government insures their deposits up to a value of £85,000, the FSA said yesterday.
From September onwards, all retail deposit takers will have to display posters and stickers letting customers know they are insured if their bank goes bust and giving details of the Financial Services Compensation Scheme (FSCS), which was beefed up after the collapse of Northern Rock.
The move comes shortly after a ratings agency downgrade of Santander UK prompted some customers to withdraw savings from the bank, despite the vast majority of them being guaranteed by the FSCS.
The scheme is funded by a levy on lenders, although if it were overwhelmed with demand due to a run of bank collapses, it is likely the government would bail it out.
Andrew Bailey, head of UK banks at the FSA, said: “Customers need to feel confident about their money and to do this they need to know what the compensation limits are and which scheme would provide cover in the event of a bank, building society or credit union failure.”
The FSA’s aim is to prevent the negative feedback of customers’ fear about their money generating bank runs.
All British banks that are legal subsidiaries in this country are covered by scheme, which is an industry-funded insurance plan that bails out customers who put up to £85,000 in the event of a bank going bust.
It also covers depositors putting money in branches of foreign, non-European banks. But due to EU law, it does not cover branches of European banks that are not subsidiarised here.
So, for example, while Santander UK’s depositors are covered, those putting their money in one of the group’s foreign branches of Santander Totta in London would not be covered.
Bailey said: “Too many people assume that because their branch is located on a local high street in the UK, they are covered by the FSCS. This is not true for UK branches of [EU] banks where the home country’s deposit guarantee scheme applies.”