Banks Will Have To Fund Guarantees
Chancellor of the Exchequer Alistair Darling has suggested that ultimately the banks and building societies will have to fund the new regime to guarantee people's savings.
Mr Darling spoke about new measures designed to make sure that the recent crisis at Northern Rock can never be repeated. Before the crisis hit the first £2,000 of savings were 100% guaranteed, but then only 90% of the next £33,000 - by the Financial Services Authority (FSA).
Although Mr Darling would like to be able to fully protect savings up to £100,000, new laws would need to be put in place to accomplish that. Speaking last Sunday, he suggested that consultation regarding funding for the guarantees would be needed, but the financial industry could ultimately pay for the system.
He said: "What I want to do in relation to the banking system is firstly to tighten up some of the early warning systems so that we can try and avoid this problem happening in the first place. Secondly, in the unlikely event of a bank getting into difficulties - failing - then we can do something about it to protect the individual savers.
"I want to look at protecting up to £100,000. It needs to be significantly over the present sum, which is only £2,000. If you look at today's announcement, this is just a first stage of the reform because we can do this through administrative means, we can do it immediately. The second stage will need consultation, then legislation."
When asked who would pay for the scheme Mr Darling said: "At the moment the scheme is funded by the financial services industry - by the banks - that seems to me to absolutely essential, that we have a system that is there that can protect people. It is necessary to consult to get a sensible system in place. There is such a system in the US...I think everybody is agreed on this."
The British Bankers' Association is not so sure. Angela Knight was wary about the possible expense of guaranteeing up to £100,000 in a new scheme. She said: "I think we have to be careful of ramping up to those sorts of figures, because that would be a very expensive thing to do, and if it is very expensive then ultimately, of course, there will be consequences in terms of costs, charging structures and so forth. After all we haven't had a bank fail. The real issues I think the Chancellor should be looking at are what happened to cause the problems in the first instance."
"Costs and charging structures" will mean that in fact, ultimately, it will be the consumers who pay for their own guarantees.
Shadow chancellor George Osborne, of the Conservatives, said that Mr Darling was 'piling confusion upon confusion'. Mr Osborne said: "After mishandling the crisis, he is mishandling the aftermath. Why did he tell one newspaper that savings would be guaranteed up to £100,000, only to change his mind ten days later and offer protection at a much lower level? What people want in a period of financial instability is certainty, not fiddling."
Published on October 3, 2007
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