12 October 2007
In the wake of the crisis at Northern Rock, which saw queues of worried customers outside branches in the first UK 'bank run' for over a century, the Chancellor of the Exchequer Alistair Darling has announced a discussion paper on keeping deposits safe.
Customers sought to withdraw their funds from Northern Rock because they were worried that, with the bank apparently in financial crisis, their deposits would not be safe.
It took direct government intervention - and a promise that all deposits were backed up - for consumers' fears to subside.
Announcing the document in Parliament yesterday, Mr Darling said that the depositor compensation system, which pays out to customers if a bank collapses, would be reformed.
Launching the discussion paper itself later, Economic Secretary to the Treasury Kitty Ussher said: "To maintain trust in the financial system, consumers want to be sure that they will be able to get their money back in a timely fashion if a bank were to run into problems. They also want to know that they will continue to have access to day-to-day banking services with strong safeguards in place, at least until they can transfer services in an orderly way.
"It is in all our interests that the framework for depositor protection delivers an orderly and transparent process with a better protection scheme as its foundation."
While the nature of the eventual reforms remain unclear at this early stage, the government has already issued guidelines for the future legislation.
The new compensation must be clearly understandable for depositors, must "maintain wider market confidence" and should safeguard Britain's reputation as "the pre-eminient location for financial services", it said in a statement.
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