The Financial Times reported on April 16 that the Bank of England is mulling a significant overhaul of its deposit guarantee scheme, including increasing the amount secured for companies and requiring banks to pre-fund the system to a greater level to enable faster access to cash in the event of a lender’s collapse.
The UK’s Financial Services Compensation Scheme is being quickly reassessed following Silicon Valley Bank’s swift failure in March, according to the FT, citing persons briefed on the situation.
The failure of Silicon Valley Bank plus two other banking institutions in the United States last month, as well as UBS’ forced takeover of Credit Suisse, threw banking shares worldwide into a tailspin; however, markets have since recovered.
Last week, Bank of England Governor Andrew Bailey stated that the British central bank was examining changes to its approach to depositor payouts for smaller banks, with a focus on timeliness.
Going further and considering expanding deposit protection, restrictions could entail costs for the banking system as a whole, Bailey said on April 12 in Washington, where he was attending IMF meetings. There is no such thing as a free lunch in bank resolution, he added.
The increased anxiety about the safety of banks around the world has prompted debate over how far administrators should go to shore up the industry, if necessary, particularly regional lenders across the United States.
According to the Financial Times, regulators were concerned that the UK guarantee’s 85,000-pound limit covered only roughly two-thirds of deposits and that the comparatively low amount of pre-funding meant consumers would have to wait at least a week to regain access to their funds.
