Who’ll pay when you go bust, UK asks lenders

Who’ll pay when you go bust, UK asks lenders

LONDON - Reuters
Who’ll pay when you go bust, UK asks lenders

The offices of HBOS London, a leading British lender, and Bank of Scotland are seen in this file photo. AP photo

Britain’s banks must post information in branches and on websites by September spelling out clearly who will reimburse customer deposits if the lender goes bust, the Financial Services Authority (FSA) said yesterday.

The regulator said the move is part of a long-term initiative to improve battered public confidence in banks.

Britain had to rescue several lenders in the 2007-09 financial crisis when the country saw its first bank run in over a century. Concerns have increased in recent weeks amid fears Greece may crash out of the eurozone and as Spain battles to stabilize its banking sector. “Customers need to feel confident about their money and to do this they need to know what the compensation limits are and which scheme would provide cover in the event of a bank, building society or credit union failure,” Andrew Bailey, the FSA’s director of UK banks and building societies, said in a statement.

Protection rules

The terms of protection are unchanged.

Deposits held at Britain’s big high street banks like Barclays, HSBC, Lloyds and Royal Bank of Scotland are covered by the U.K. Financial Services Compensation Scheme (FSCS).

Spanish bank Santander’s UK based accounts are also covered by the British scheme.

If a bank goes bust, deposits up to 85,000 pounds are protected by the scheme, as required under European Union law.

The EU raised protection to this level in the wake of the 2007-09 financial crisis which saw governments having to bail out many banks.

Branches of banks from elsewhere in the European Economic Area - which includes EU countries and non-bloc states Norway, Iceland and Liechtenstein - must make it clear to customers in Britain whose national scheme will protect deposits up to 100,000 euros, the FSA said.

New requirements

The FSCS said banks should go “the extra mile” beyond the minimum information requirements outlined by the FSA.

“The banking crisis shows how important it is for consumers to have clear information about FSCS protection,” the scheme’s chief executive Mark Neale said.

The new FSA requirements were first aired in a consultation paper last December on raising consumer awareness on deposit protection.

The watchdog has already taken other steps, such as requiring banks to detail deposit protection information on statements twice a year.

The FSCS said it has helped more than 4.5 million people and paid out 26 billion pounds in compensation since 2001.

The scheme is funded by the financial services industry through a levy.

Spain may seek European bailout money

MADRID – Agence France-Presse

Spain’s government may seek European financial bailout funds to shore up its banks if market borrowing rates remain too high, a newspaper said yesterday.

Daily El Mundo said the state, which has received a request for 19 billion euros ($24 billion) to rescue troubled lender Bankia, may have to inject another 30 billion euros into the sector. To raise funds on the market, Spain now has to pay a risk premium -- the extra annual borrowing cost when compared to safe German government debt -- of about five percentage points. Yesterday morning, the risk premium hit a euro-era record of 509 basis points.

 If the risk premium remains at high levels, “Spain could ask for help from the European Financial Stability Facility,” a government official was quoted as telling El Mundo. “It is a possibility, although now every hypothesis is possible,” the source reportedly said. A spokeswoman at the Economy Ministry told AFP that the government’s policy of not requesting outside aid, “has not changed.” The EFSF, which is backed by European nations including Germany, obtains money at cheap rates on the sovereign debt markets and passes them on to troubled nations such as Greece, Ireland and Portugal. El Mundo quoted an unnamed government official as saying that Europe had not yet decided how to handle Greece’s situation.