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Proposals to increase threshold for bank deposits protection

Published 21/11/2016

The Bank of England said it may hike the protection limit for bank customers following the collapse in the value of the pound
The Bank of England said it may hike the protection limit for bank customers following the collapse in the value of the pound

The Bank of England said it may hike the protection limit for bank customers following the collapse in the value of the pound.

The Bank's Prudential Regulation Authority (PRA) is exploring whether to push the threshold up to £85,000 from £75,000 on January 30 next year.

The Financial Services Compensation Scheme (FSCS) currently insures bank customers with deposits up to £75,000 if a lender suffers financial collapse.

The move comes because the Deposit Guarantee Schemes Directive demands non-euro members of the European Union to change their limits following "unforeseen events such as currency fluctuations".

"Taking into consideration the developments in financial markets following the UK's referendum vote on 23 June 2016 to leave the European Union, including with respect to the GBP/EUR exchange rate, the PRA considers that a structural shift in the exchange rate has occurred," the Bank said.

Sterling has slumped 18% against the US dollar and 11% versus the euro since Britain voted to leave the European Union.

The directive previously required banks reduce their protection limit to £75,000 on July 3 last year.

If approved following consultation, firms would have until June 30, 2017 to make the changes.

The consultation closes on December 16.

Andrew Tyrie, chairman of the Treasury Select Committee, said the proposed change to the deposit protection limit was a "recipe for yet more uncertainty".

"These recent changes have not been the fault of the PRA. They are an EU requirement, imposed by the European Commission. The current EU rules have always been unacceptable to a country such as the UK, in the EU but outside the eurozone.

"The absurd situation, in which the UK is left vulnerable, at the discretion of the European Commission, to frequent changes in our deposit scheme, must be brought to an end. Brexit should give the UK the opportunity to set its own level of protection. We should take it."

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