COMMENT The Northern Rock debacle exposed a hole in the heart of Britain’s financial system: a haphazard scheme for insuring savers’ deposits. The Treasury’s consultation paper on bank reform addresses deposit insurance but it contains a serious flaw. Banks are still being asked to make insurance payments retrospectively, rather than in advance, based on how risky their businesses are.
The Treasury proposals have their merits. Increasing the limit for insured deposits by £15,000 to £50,000 and ensuring savers will receive money from failed banks within a week should make bank customers more confident. Also, the Treasury is right to insist that regulation of deposits insurance remains within the Financial Services Authority. This should keep the compliance burden on banks low and will integrate the scheme into the wider financial stability regime.
