Chancellor Darling to fend off another Rock with new legislation

Source: Exec Digital UK

Date :30/01/2008 09:12:45

Chancellor, Alistair Darling, will unveil new proposals for the FSA, the Bank of England and the Treasury, designed to avoid a repeat of the Northern Rock debacle, by boosting banking supervision.

The three-month consultation on legislation, which Mr. Darling will launch today, is designed to control the damage of a future banking crisis, including an idea that banks fund upfront the depositor compensation scheme.

The near collapse last year of Northern Rock, which sparked the UK's first bank run in more than 140 years, has triggered calls for changes to the way Britain oversees its banking industry.

"I want to make sure our own legislation is up to the mark in dealing with problems when they arise in future," Darling said in an interview published in earlier this month in the Financial Times.

Liquidity, insolvency

The consultation is likely to give the Financial Services Authority (FSA) more power. Banks will be required to have systems to inform the FSA at “short notice” their liquidity situation.

The proposals put forward could also include a banking insolvency regime which would give the authorities powers to take a failing bank out of the market, protecting savers’ deposits and parcelling out parts of the business to another bank.

The first £35,000 of savers' deposits are guaranteed under the current deposit protection scheme-covering an estimated 97 percent of savers - but the chancellor has an open mind, arguing that the three percent of remaining savers hold roughly 50 percent of all bank deposits.

The banks want to keep the figure at £35,000.

January 30, 2008