Collapsing Banks Should Compensate Customers
24/07/2008
The Bank of England governor Mervyn King has told MPs that banks should put billions of pounds into a fund over the next ten years that would compensate customers when a lender collapses.
King told the Treasury select committee that the Government should pass legislation requiring banks to pay billions of pounds into a depositor protection fund, with lenders contributing in line with their level of risk.
The governor made clear that he did not expect banks to put up all of the money themselves: the Government should be expected to contribute. King also recommended that the Bank of England be given the power to write to the FSA in the event that a bank is struggling, and recommend it be rescued.
"We will not have the right to initiate the trigger," King said. "We will have the right to make a written recommendation to the FSA so that they pull the trigger. That's clearly not the same thing."
The Bank of England has faced criticism in the past for not acting quickly enough over the Northern Rock crisis. However, King is adamant the Bank did all it could given the current powers at its disposal.
King told the Treasury select committee that the Government should pass legislation requiring banks to pay billions of pounds into a depositor protection fund, with lenders contributing in line with their level of risk.
The governor made clear that he did not expect banks to put up all of the money themselves: the Government should be expected to contribute. King also recommended that the Bank of England be given the power to write to the FSA in the event that a bank is struggling, and recommend it be rescued.
"We will not have the right to initiate the trigger," King said. "We will have the right to make a written recommendation to the FSA so that they pull the trigger. That's clearly not the same thing."
The Bank of England has faced criticism in the past for not acting quickly enough over the Northern Rock crisis. However, King is adamant the Bank did all it could given the current powers at its disposal.
