The protection available for savers under the Financial Services Compensation Scheme has more than doubled in the decade since the collapse of Northern Rock.
Today marks the 10-year anniversary of Northern Rock seeking emergency funding from the Bank of England, which triggered the first run on a UK bank for more than a century.
This was seen as the first sign of the financial crisis, which engulfed the banking sector a year later.
Since this period the amount of money paid out by the FSCS has spiralled – as has the levy paid by advisers and product providers which help fund the safety net.
Following the collapse of Bradford & Bingley alone, the FSCS paid out more than £15 billion to consumers.
Recent research by Money Marketing shows that levies paid by life and pension intermediaries has risen sharply in the last few years. While those paid by investment advisers did rise between 2013/14 and 2015/16, they have now stabilised.
In 2007 concerns about the safety of bank deposits led to long queues outside many Northern Rock branches – as many people faced losing substantial amounts of money, if the bank collapsed.
At the time only the first £2,000 of saving were fully protected by the Government via the FSCS. The FSCS also guaranteed 90 per cent of the next £33,000 on deposit, protecting a maximum of just £31,700.
Today, the FSCS guarantees to protect the first £85,000 saved in each authorised bank – a rise of 168 per cent.
A spokesman for the FSCS says research showed that at this level 98 per cent of the population had their savings fully protected by the FSCS.
The FSCS has also spent considerable sums promoting its services and educating the public about this safety-net scheme. It says research shows that 82 per cent of ‘felt reassured’ by the presence of the FSCS.
This is in contrast to the events of 2007 – when many savers were confused about how much would be protected if their bank got into difficulties. The FSCS said that in the weeks after the Northern Rock crisis it received a 1,000 per cent increase in the number of deposit-related queries.
FSCS chief executive Mark Neale says: “For many people in the UK, the financial crisis began with the events of September 14 2007. At the FSCS we had first-hand experience of what this mean for those members of the public caught up in these extraordinary events.
“Public trust in the banking system is essential for the economy to function. FSCS will continue to make improvement to our systems so we are ready to respond if another major failure should occur.”
As part of these improvement the FSCS has invested in its systems to ensure claims are paid quicker.
In 2007, it took up to three months to process a valid claim, today claims are fully automated and paid in less than week.
Many advisers have complained that it is not clear how the FSCS spends the money raised from the industry. There are also concerns that law-abiding majority of the sector are paying for the recklessness of higher-risk firms that subsequently go out of business – leaving the FSCS to pick up the tab.