Proposals published by HM Treasury, the Financial Services Authority (FSA) and the Bank of England for “strengthening the framework for financial stability and protecting depositors” were welcomed by the Confederation of British Industry (CBI).
“The CBI welcomes the Treasury’s further consultation on banking reform and protecting depositors,” says John Cridland, the CBI’s deputy director-general. “We support the suggestions not to move to a pre-funding of the depositor protection scheme, at least at this stage, as this would take ages to build up to an amount which would deal with a failure of any size.”
The proposals build on a consultation document published in January and will now be the subject of a further period of consultation, prior to the introduction of legislation in the autumn.
They focus on five objectives:
* strengthening the stability and resilience of the financial system – in the UK and internationally;* reducing the likelihood of individual banks facing difficulties – including regulatory interventions and liquidity assistance;* reducing the impact if a bank gets into difficulties;* providing effective compensation arrangements in which consumers have confidence; and* strengthening the Bank of England, and ensuring effective coordinated actions by authorities, both in the UK and internationally.
“No system of regulation can or should prevent the failure of each and every institution, but we must do everything possible to prevent problems which could pose a wider threat to stability,” says Alistair Darling, the Chancellor of the Exchequer. “The challenge is to ensure that the authorities can act quickly and decisively where necessary to support financial institutions. These proposals will give the authorities the full range of powers they need. They do so by entrenching the model established a decade ago – the FSA responsible for individual institutions, the Bank of England for the stability of the financial system as a whole – but by providing each institution with new powers, and improving coordination between them.”
The deadline for comments on the consultation document is 15 September 2008, during which time the Authorities will be actively seeking views and engaging with stakeholders.
The Government intends to follow up this consultation by introducing legislation into Parliament later in this session.
“The existing US scheme has been in place since the 1930s, but only has sufficient funds to deal with a Northern Rock event, and the failures it has been directed to have been quite small banks,” says Cridland of the CBI. “The UK’s current 35,000 scheme limit covers over 96% of deposits by number and is in line with limits elsewhere, and we did not therefore see an overriding need to increase the limit significantly.”
The full text of the proposal can be found on the HM Treasury website at http://www.hm-treasury.gov.uk/documents/financial_services/financial_stability_framework.cfm.