A view of the Bank of England at dusk in London. The BoE said it was considering allowing people with deposits of more than £75,000 in long-term savings accounts to move their money without a penalty.
Reuters/London
Britain is reducing the maximum bank deposit it will protect if a lender fails by £10,000 to £75,000 ($117,255) from the end of this year, the Bank of England said yesterday.
European Union law requires member states to protect no more and no less than €100,000 ($111,130) of deposits. Countries such as Britain which do not use the euro must adjust the local-currency amount once every five years.
“The process and timing is specified by the Directive and is not at the Prudential Regulation Authority’s discretion,” the BoE’s regulatory arm said in a statement.
Sterling has strengthened by around 20% against the euro since 2010, obliging Britain to cut the previous £85,000 of protection.
Britain’s finance ministry said less than 5% of customers of banks, building societies and credit unions would be affected by the lower limit.
Britain’s deposit protection scheme has paid out more than £26bn to 4.5mn people since it was established in 2001. Major claims include Northern Rock, which suffered a bank run at the start of the financial crisis in 2007.
The change will take effect at the end of 2015, except for some new depositors such as larger companies and small local authorities which are being protected by the rules for the first time and will get £75,000 of protection immediately.
Under a new rule, deposits of up to £1mn will have temporary protection for six months from the date of deposit, in a change aimed at helping people who are hit by a bank collapse while moving house or receiving an inheritance.
The PRA said it was considering allowing people who had deposits of more than £75,000 in long-term savings accounts to move their money without a penalty, and would consult on this until July 24.
Andrew Tyrie, the Conservative legislator who heads the British parliament’s finance committee, said the EU directive which requires this was “defective” and that he would ask Britain’s finance ministry to lobby the EU for changes. “It is absurd that the depreciation of the euro, largely brought about by the crisis in the euro zone in general and the Greek crisis in particular, should be forcing a reduction in the level of protection available to UK depositors,” he said.
The British Bankers’ Association called the change “disappointing”, as customers were used to the £85,000 guarantee. The European Commission had no immediate comment.
Other changes to the deposit guarantee scheme are more favourable for savers. Deposits of up to £1mn will gain protection for up to six months in some circumstances — if a customer has just sold a house or received an inheritance, for example.
Large businesses and smaller local government authorities will also gain protection for the first time.
