Savers get priority in Government plans to reform banks

White Paper proposes that savers see their money before other creditors if a bank goes under.

Savers’ cash will be a priority if a bank fails says the Government’s long-awaited White Paper on banking reform.

It proposes that individual savers will be ahead of bondholders and corporate creditors in the queue for cash if a bank goes under.

This measure was recommended by the Independent Commission on Banking, led by Sir John Vickers, in its report last year.

It means that that cash protected under the Financial Service Compensation Scheme, up to a limit of £85,000 per person per bank/building society, will become ‘preferred debts’ if a bank fails.

The British Bankers Association is against the move. It argues that the insurance of £85,000 per person per bank/building society is adequate protection alone.

The proposals are part of the move to provide “a robust ring fence” around the investment and related arms of banks and their day-to-day personal and business activities.

The Government also wants banks to hold more capital, a move which industry experts say may lead to higher charges for banking and borrowing.

The White Paper is still open for further consultation with draft legislation due in the autumn.  However, if agreed, the move to give savers more protection is not scheduled to become law until 1st January 2019.

By contrast, whatever is agreed around ring-fencing will be made law by the end of this Parliament in 2015.

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