Overhaul of compensation scheme's pricing systemThe levies imposed on banks by the FSCS may change
01 July 2009
The Deputy Governor of the Bank of England, Paul Tucker, has proposed changes to the funding of the Financial Services Compensation Scheme, including upfront funding and risk-based levies.
Under the proposals those banks that take greater risks will have to pay more towards the industry's insurance scheme to protect consumer deposits. Currently banks and building societies are levied according to the level of consumer deposits they hold.
The existing levy system has been criticized by the Building Societies Association (BSA), who argue that building societies are more risk-averse and that this should be reflected in their contributions.
The current scheme is also initially funded by a loan from the Treasury and then repaid by the banking industry, which leads to interest fees which are paid by the banks, as well as any shortfalls. Under the proposals the funding of the scheme would be upfront to avoid this.
The proposals were unveiled at a speech given by Mr Tucker at the British Bankers’ Association’s Annual International Conference, where he said, "...any such insurance scheme must be pre-funded; it is no good trying to collect levies from riskier banks after they have gone bust”.
The FSCS scheme
The Scheme, which was recently changed in the wake of the financial crisis to cover 100% of deposits up to £50,000. The FSCS also covers life and general insurance firms, home finance advice and arranging, and general insurance advice and arranging.
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