Bank Of England Overhaul Deposit Guarantee Program After SVB’s Collapse

Key Points:

• The Bank of England is considering significant reforms to its deposit guarantee mechanism in the wake of the SVB dump.
• Reforms include increasing the current amount of business deposit guarantees (£85,000) and forcing banks to pre-fund the system to a greater extent to speed up payments in the event of failure.
• The UK’s Financial Services Compensation Scheme (FSCS) is under urgent review following the bankruptcy of Silicon Valley Bank and its UK subsidiary last month.

The Bank of England is considering overhauling its deposit guarantee program in the wake of the recent global banking crisis.

According to Britain’s Financial Times, citing people familiar with the matter, the Bank of England is considering significant reforms to its deposit guarantee mechanism, including increasing the number of deposit guarantees for existing businesses (£85,000) and requiring funding banks to be provided in advance to ensure faster payments in the event of a bank failure.

Regulators are concerned that the guarantee’s current £85,000 limit covers only about two-thirds of deposits. The relatively low level of pre-funding means customers will have to wait at least a week to regain their rights access to their cash

The BOE’s deposit guarantee scheme has recently come under scrutiny after the collapse of Silicon Valley Bank and its UK branch. HSBC Holdings Plc ended up buying Silicon Valley Bank’s UK business for £1 to avert the consequences and protect the lender’s customers. The United States Federal Deposit Insurance Corporation guarantees deposits up to $250,000.

Governor Andrew Bailey has hinted at the possibility of an increase in the deposit guarantee program, saying on Wednesday that regulators need to review the level of protection they offer depositors at smaller banks.

“We need to look at deposit insurance and keep that under review,” Hunt told the Financial Times last week. If supervisors recommend that the limit is boosted, “it will come across my desk as to how we finance that increase”.

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