By Tommy Reggiori Wilkes
LONDON (Reuters) -The Bank of England has proposed raising the protection limit for savers in case a bank fails to 110,000 pounds ($142,300), it said on Monday.
The deposit protection limit is the maximum amount of money that is typically protected for savers should their bank fail and under the Financial Services Compensation Scheme (FSCS) has been capped at 85,000 pounds since 2017.
The BoE began examining an overhaul of the guarantee scheme in 2023, after the rapid collapse of the UK arm of Silicon Valley Bank raised questions about how to ensure faster access to cash when a lender collapses and about whether deposit protection was sufficient. BoE Governor Andrew Bailey said at the time that raising the limit was not the solution.
A hike in the UK’s guarantee would put deposit protection above that of the EU but below the United States. EU deposit protection is harmonised at 100,000 euros across member states, while in the U.S. it is at least $250,000 per depositor.
“Confidence in our financial system is an essential foundation for economic growth. We want to support confidence in our banks, building societies and credit unions by raising the amount that people can keep in their account,” said Sam Woods, Deputy Governor for Prudential Regulation and CEO of the Prudential Regulation Authority (PRA), which is part of the BoE.
An increase would take into account inflation since then, the PRA said in a statement, adding that any change, if implemented, would apply from December.
As part of a wide-ranging consultation, the PRA is also proposing the introduction of new rules to enable funds from the FSCS to be used to recapitalise failing firms.
The limit for certain temporary high balance claims, such as when buying or selling a house results in depositors’ balances being temporarily very high, should increase to 1.4 million pounds from the current one million pounds, it said.
“Raising the deposit protection limit is a sensible decision to support consumer confidence in the financial service industry,” Rocio Concha, Director of Policy and Advocacy at consumer group Which? said in the BoE statement.
The UK Treasury will decide on whether to enact the PRA’s proposals.
($1 = 0.7730 pounds)
(Reporting by Tommy Reggiori Wilkes, Sarah Young and Sachin Ravikumar; Editing by Paul Sandle, Aidan Lewis and Gareth Jones)
