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Bank of England Proposed Reforms to Deposit Guarantee Plan

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According to reports, the Bank of England is considering significant reforms to its deposit guarantee plan, including increasing the amount of deposit guarantee for businesses and

Bank of England Proposed Reforms to Deposit Guarantee Plan

According to reports, the Bank of England is considering significant reforms to its deposit guarantee plan, including increasing the amount of deposit guarantee for businesses and forcing banks to provide more pre funding for the system to ensure faster access to cash in the event of bank failure. According to insiders, the Financial Services Compensation Scheme (FSCS) in the UK is undergoing emergency review after the rapid bankruptcy of Silicon Valley Bank last month. The above-mentioned insiders stated that regulatory authorities are concerned that the current £ 85000 guarantee limit can only cover about two-thirds of deposits, and the relatively low pre financing level means that customers will have to delay at least a week to regain cash. These deficiencies have weakened people’s confidence in FSCS and reduced its effectiveness in preventing bank runs. However, raising the guarantee threshold and raising the pre financing level is costly for banks, who have long lobbied the Ministry of Finance against such changes.

The Bank of England is considering urgent reforms to its deposit protection plan

As per recent reports, the Bank of England is considering significant reforms to its deposit guarantee plan. These reforms include increasing the amount of deposit guarantee for businesses and forcing banks to provide more pre-funding for the system to ensure faster access to cash in the event of bank failure.

Need for Reforms

The Financial Services Compensation Scheme (FSCS) in the UK is undergoing emergency review after the rapid bankruptcy of Silicon Valley Bank last month. According to insiders, regulatory authorities are concerned that the current £ 85000 guarantee limit can only cover about two-thirds of deposits, and the relatively low pre-financing level means that customers will have to delay at least a week to regain cash. These deficiencies have weakened people’s confidence in FSCS and reduced its effectiveness in preventing bank runs.

Proposed Reforms

To regain public trust and confidence, the Bank of England is proposing significant reforms to the FSCS. These reforms include:

Increasing Deposit Guarantee for Businesses

The Bank of England is considering increasing the amount of deposit guarantee for businesses. The current £ 85000 guarantee limit is not sufficient to cover some businesses’ deposits, primarily medium and large-scale enterprises. Increasing the deposit limit will help address concerns raised by businesses about the limits of FSCS coverage.

Forcing Banks to Provide More Pre-Funding

To ensure faster access to cash in the event of a bank failure, the Bank of England is proposing an increase in pre-funding by banks. This increase will help the FSCS to speed up the compensation process for customers in case of bank failure. Currently, the relatively low pre-funding level means that customers have to wait at least a week to regain cash, further reducing their confidence in the FSCS.

The Cost of Reforms

Raising the guarantee threshold and pre-funding level is costly for banks, who have long lobbied against such changes. Banks argue that the cost of implementing these reforms could be significant and may impact their profitability. However, the Bank of England maintains that these reforms are necessary to build public trust and confidence in the FSCS.

Conclusion

In conclusion, the proposed reforms to the Bank of England’s deposit guarantee plan are necessary to address the deficiencies in the current system. The increase in deposit guarantee for businesses and pre-funding by banks will help the FSCS to speed up the compensation process in case of bank failure. Although there may be some resistance from banks due to the associated costs, the proposed reforms are essential to ensure the effectiveness of the FSCS in preventing bank runs and building public trust.

FAQs

1. What is the Financial Services Compensation Scheme (FSCS)?
A: The FSCS is a statutory compensation scheme that protects customers’ deposits in the event of a bank failure.
2. What is the current deposit guarantee limit in the UK?
A: The current deposit guarantee limit in the UK is £ 85000 per person per bank.
3. Will the proposed reforms increase banks’ costs?
A: Yes, the proposed reforms will increase banks’ costs, which may impact their profitability.

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