A Treasury paper on financial stability and depositor protection out today says the Financial Services Authority will consult on reforms later this year, including a proposed increase to the Financial Services Compensation Scheme limit for depositor compensation to £50,000 per person per bank.
The Government intends to allow itself the freedom in new legislation to introduce pre-funding of the FSCS should this be necessary, the paper reveals.
The paper also includes proposals to allow better communication and information sharing between the Tripartite authorities.
But the British Bankers’ Association says the paper’s focus on the specific threshold at which the compensation limit is set “misses the point”.
It welcomes the move to increase public confidence in the banking system, but it says it is better to ensure depositors do not need to call on this compensation in the first place.
The BBA says: “We have been talking with the Government and regulators about intervening earlier should a bank get into difficulties to prevent a banking problem becoming a crisis.”
Chancellor Alistair Darling says: “No system of regulation can or should prevent the failure of each and every institution, but we must do everything possible to prevent problems which could pose a wider threat to stability.
“The challenge is to ensure that the authorities can act quickly and decisively where necessary to support financial institutions. These proposals will give the authorities the full range of powers they need.
“They do so by entrenching the model established a decade ago – the FSA responsible for individual institutions, the Bank of England for the stability of the financial system as a whole – but by providing each institution with new powers, and improving co-ordination between them.”
FSA chairman Callum McCarthy says: “We are working closely with the Treasury and the Bank of England to strengthen the stability and resilience of the financial system and reduce the likelihood of banks failing. This legislation is one of the most important changes of the last decade and its influence will last for decades to come.
“We will consult later this year on the supervisory aspects of the new banking resolution regime and for changes to depositor compensation and will work with our tripartite partners to implement the new arrangement effectively.”