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Savers get priority in Government plans to reform banks


Updated on 14 June 2012 | 5 Comments

White Paper proposes that savers see their money before other creditors if a bank goes under.

Savers’ cash will be a priority if a bank fails says the Government’s long-awaited White Paper on banking reform.

It proposes that individual savers will be ahead of bondholders and corporate creditors in the queue for cash if a bank goes under.

This measure was recommended by the Independent Commission on Banking, led by Sir John Vickers, in its report last year.

It means that that cash protected under the Financial Service Compensation Scheme, up to a limit of £85,000 per person per bank/building society, will become ‘preferred debts’ if a bank fails.

The British Bankers Association is against the move. It argues that the insurance of £85,000 per person per bank/building society is adequate protection alone.

The proposals are part of the move to provide “a robust ring fence” around the investment and related arms of banks and their day-to-day personal and business activities.

The Government also wants banks to hold more capital, a move which industry experts say may lead to higher charges for banking and borrowing.

The White Paper is still open for further consultation with draft legislation due in the autumn.  However, if agreed, the move to give savers more protection is not scheduled to become law until 1st January 2019.

By contrast, whatever is agreed around ring-fencing will be made law by the end of this Parliament in 2015.

Do the measures go far enough? Have your say in the Comments section below.

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Comments



  • 26 June 2012

    British Bankers' Association here. The issue for us is that we are already building (or have already built) a series of protections for bank depositors which should ensure they are fully protected and that no financial institution will need taxpayer support in future. The higher capital and liquidity standards are widely known, and so is the ringfencing of investment banking from high street banking as outlined in this month's banking reform white paper from the Government. But there are also the Recovery and Resolution Plans established in the Banking Act of 2008, which set out how a failing bank might either be restructured or wound up. And these safeguards are on top of the guaranteed compensation amounts (£85,000 per individual, or £170,000 for joint account holders) in the Financial Services Compensation Scheme.

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  • 15 June 2012

    If a company operates when insolvent, the directors also become liable for the company's debts. Where would bankers' bonuses be if that had been enforced? In the hands of the bank's savers, where they belong....

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  • 15 June 2012

    Old Henry I agree with you. Any other privately owned company other than a bank which effectively traded whilst insolvent would face the following legal sanctions: Bankruptcy, liquidisation of all assets, prosecution of the directors for trading when insolvent, prosecution of directors for fraud where fraud was obvious. Prosecution for fraud and for failing to comply with trading standards e.g. PPI. Prosecution for promoting and effecting the sale of financial instruments which were known to be not fit for purpose and where in fact of little value. Prosecution for deception, prosecution for failing to oversee and monitor high risk in vestment of both clients capital and banks working capital. Prosecution for deliberately advising clients on tax avoidance. Prosecution for money laundering by advising clients to operate accounts disguised to avoid HMRC investigation. That list would just be for starters.Existing directors and managers who were part of or where employed to oversee the banks operations should be barred from any financial services employment in the UK or for a financial services company with its HQ in the UK for life. In addition, short selling of currency should be made illegal as should the poor advice from the so called independent rating agencies, who are obviously bought and paid for by the American banks.

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