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Fresh rules to guarantee savings Fresh rules to guarantee savings
(10 minutes later)
The scheme to protect savers with money deposited in UK banks and building societies will be expanded. The scheme to protect savers with money deposited in UK banks and building societies has been expanded.
Under the guarantee - promised after the run on Northern Rock - customers' first £35,000 will be fully protected. Under the guarantee - promised after the run on Northern Rock - customers' first £35,000 are now fully protected.
Chancellor Alistair Darling told the BBC that this was the first stage of a wider process to reform the system that protects UK savers.Chancellor Alistair Darling told the BBC that this was the first stage of a wider process to reform the system that protects UK savers.
New legislation could protect savings of up to £100,000 and specially protect savers' assets should a bank go bust.New legislation could protect savings of up to £100,000 and specially protect savers' assets should a bank go bust.
Under the old Financial Services Compensation Scheme, savers were given a guarantee for 100% of their first £2,000 of their savings, and 90% of the next £33,000. This would leave them with just £31,700 of their savings if a bank went into administration. Under the old Financial Services Compensation Scheme, savers were given a guarantee for 100% of their first £2,000 of their savings, and 90% of the next £33,000. This would have left them with just £31,700 of their savings had a bank gone into administration.
This was not enough to calm nerves when UK bank Northern Rock had to go to the Bank of England for an emergency loan.This was not enough to calm nerves when UK bank Northern Rock had to go to the Bank of England for an emergency loan.
Thousands of savers queued outside Northern Rock branches or went online and withdrew several billion pounds over just a few days - until the Treasury stepped in and guaranteed all their savings.Thousands of savers queued outside Northern Rock branches or went online and withdrew several billion pounds over just a few days - until the Treasury stepped in and guaranteed all their savings.
No unlimited guaranteeNo unlimited guarantee
Mr Darling told BBC Radio 4's Today programme that using administrative powers he could ensure that 100% of the first £35,000 of savings will be protected straight away. Mr Darling told BBC Radio 4's Today programme that using administrative powers he could ensure that 100% of the first £35,000 of savings would be protected straight away.
During the second stage of the reform process, he hoped to "separate savers money from the rest of a bank's assets, so that savers' money is as much protected as possible", Mr Darling said. During the second stage of the reform process he hoped to "separate savers money from the rest of a bank's assets, so that savers' money is as much protected as possible".
To do this, though, the government needed to go through a process of consultation with the banking industry, followed by new legislation. To do this the government needed to go through a process of consultation with the banking industry, followed by new legislation, Mr Darling said.
The chancellor, however, ruled out an unlimited protection of savings.The chancellor, however, ruled out an unlimited protection of savings.
He said the government would study savings protection schemes around the world and indicated that the government might aim to protect savings up to around £100,000.He said the government would study savings protection schemes around the world and indicated that the government might aim to protect savings up to around £100,000.
'Market distortion''Market distortion'
Detailing the changes the Financial Services Authority said that "at a time of market uncertainty" it was important for consumers to know their deposits were properly protected.
The new rules apply only to customers of banks and building societies that default on or after 1 October 2007.
The Association of British Insurers has warned that a more generous savings guarantee scheme could distort the savings market, drawing people towards cash savings and away from investment products.The Association of British Insurers has warned that a more generous savings guarantee scheme could distort the savings market, drawing people towards cash savings and away from investment products.
BBC political correspondent James Hardy said that Mr Darling was stepping up efforts to restore public confidence in the banking system after Northern Rock's near-collapse.BBC political correspondent James Hardy said that Mr Darling was stepping up efforts to restore public confidence in the banking system after Northern Rock's near-collapse.
Previously, the chancellor had guaranteed protection for Northern Rock's savers, but the new guarantee applies to every bank and building society.Previously, the chancellor had guaranteed protection for Northern Rock's savers, but the new guarantee applies to every bank and building society.