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Bank refunds: reform gap puts savers' cash at risk

Attempting to get bank refunds could be made harder for customers as a loophole in proposed banking reforms may put savers' cash at risk.

Bank of England chief Sir Mervyn King claims taxpayers could be left footing another huge bill if there were a second financial crisis, reports the Telegraph.

He called for protection for depositors whose savings temporarily rise above the £85,000 compensation limit, otherwise there would be “enormous pressure” to resort to a state bail-out again.

New plans to spare taxpayers another bailout mean that bondholders will be forced to take a big hit if a bank is about to collapse.

However, savers would take equivalent losses on anything above £85,000 as they rank alongside bondholders.

"For any big bank on any given day, there will be thousands of people who – through no fault of their own – happen to have deposits in their bank of more than £85,000," said Sir Mervyn.

Anyone waiting for a house purchase to go through, or who has just received an inheritance or divorce settlement, could inadvertently be subject to losses.

However, a depositor guarantee to protect customers who had innocently breached the limit would also cover bondholders, leaving the taxpayer to foot the bill again.

Sir Mervyn also told the Parliamentary Commission on Banking Standards that it will still be necessary to "ring-fence" consumer banking from more risky investment activities.

The Bank of England will take over regulation of the banks from the Financial Services Authority next year.

Charles Baker

Charles is a reputed financial analyst with decades of experience under his belt.ADNFCR-2776-ID-801493748-ADNFCR

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