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FSCS issues £406m levy for banking failure

The Financial Services Compensation Scheme has sent invoices to banks, building societies and credit unions for the initial levy of £406m for compensation costs incurred following the five bank defaults of 2008.

The FSCS says the levy must be paid by September 1.

The levy is in respect of the interest charges on the loans the FSSC used to fund its compensation payments to customers of Landsbanki, Bradford and Bingley, Heritable, Kaupthing Singer and Friedlander and London Scottish Bank.

FSCS costs for the defaults were funded through loans from HM Treasury on an interest only basis for the first three years. The Scheme will use any recoveries received to repay the principal.

It will start repaying the outstanding principal, net of any recoveries, in 2012, according to a repayment schedule it will agree with HM Treasury in the light of prevailing market conditions at the time.

FSCS chief executive Loretta Minghella says: “Today’s announcement confirms that this first levy will be £406m, which is in line with our estimate announced in March. Whilst we recognise that the levy comes at a difficult time for firms, it is also clear that the FSCS plays a central role in helping promote consumer confidence in financial services which benefits the whole industry.”

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