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The Bank of England proposes to increase the amount covered by the UK Deposit Guarantee scheme from £85,000 to £110,000 under a plan where lenders are likely to contribute to the scheme.
The central bank said Monday that its plan to increase protections for UK depositors since the beginning of December “has been considering inflation since the restrictions were last changed,” and was designed to “give consumers confidence that their money is safe” in the event of lenders failing.
Since two years ago, when the collapse of the US Silicon Valley Bank threatened some depositors of their UK subsidiary to be exposed to delays in refunds and losses, reforms to the scheme to guarantee UK bank deposits have been based on regulatory agendas.
The guarantee is funded by collections paid by all approved financial services companies to the Financial Services Compensation Regime, paying millions or more pounds for failed companies in the sector.
When SVB collapsed, BOE was forced to warn UK customers. They faced a week’s wait for a refund of £6.7 billion in deposits in the UK sector of the bank, with about a third likely losing their money completely. The crisis was eventually averted after HSBC intervened almost immediately over the weekend to save UK businesses.
The UK’s deposit guarantee system has increased several times since it was created in 2001. The initial deposit protection limit is £31,700. The last time the limit increased was £85,000 from £75,000 in 2017.
BOE said that six months of additional protection for people with sudden influx of funds would increase from £1 million to £1.4 million due to events such as succession, home sales and life insurance payments.
With increased protections for UK bank depositors, they are coming closer to the US. The US has a guaranteed deposit of up to $250,000.
