Savings guarantees clarified for customers
October 21, 2007
The UK treasury has clarified the details of its guarantee to savers in the UK following the recent turmoil faced by Northern Rock, where droves of savers withdrew over £2 billion in savings after finding out that the bank had been to the Bank of England to borrow money.
Savers had been assured by both government officials and by Northern Rock, the fifth larges mortgage lender in the UK, that there was no chance of insolvency, but many still took out their savings amidst fears that the company may fold.
The Chancellor of the Exchequer, Alistair Darling, recently announced that in a crisis similar to the Northern Rock one savers would be able to have their savings guaranteed up to the amount of £100,000. Banks have supported these plans, and the guarantee will be covered by a levy on the banks. It is hoped that this will eliminate the risk of mass withdrawal from a bank, as was recently seen with Northern Rock.
Angela Knight from the British Banker’s Association stated: “When you’ve had the sort of problem we’ve had with Northern Rock and the difficulties in sort of gripping the issue, what we can’t do is just say ‘that was a one-off, let’s leave it alone’.
She added: “I think it is a one-off but we do need to look at our system and there’s some obvious pinch points within the system and many of those have been highlighted in the article and we’re working on them within the BBA at the moment.”
Conservative officials stated that they would also support changes made by the Labour government in this respect, with the shadow chancellor stating: “We are happy to work with the government to put in place new financial compensation arrangements and speed their passage through Parliament.”
Alan Wright
21st October 2007
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