The Bank of England is looking into whether “improvements” need to be made to the program.
The Bank of England (BoE) has stated that it is currently considering making “improvements” to the deposit insurance program that currently protects depositors who are customers of smaller banks.
The coverage allows depositors at smaller banks to recover the money in their accounts if those banks fail.
The country’s central bank has not yet released any details regarding what part of the deposit insurance program it is examining or what it is considering changing. That said, there is very little mystery as to why the BoE has decided to look into the program right now.
Last month, when the Silicon Valley Bank (SVB) in the United States collapsed in a matter of just 24 hours, regulators in the UK were justifiably put on edge. The situation that caused the rapid crash of SVB was that businesses withdrew more than $40 billion within a single day, something that was simplified through the use of online banking options.
US regulators are also conducing a review of the deposit insurance system’s coverage.
In the US, the system provides full protection of deposits as large of $250,000 should the bank fail. US regulators found themselves fully guaranteeing SVB’s deposits in order to help rebuild confidence in the US banking sector and prevent a panic spread quickly by the media.
The Bank of England is now reviewing its own version of the coverage, which is called the UK Financial Services Compensation Scheme. That program’s review had already been planned even before SVB collapsed and before Credit Suisse experienced an emergency takeover.
That said, the goal has shifted slightly, as it has become even more important to make sure customers feel confident in their banking system and don’t fear the repercussions of bank failures. There have been speculations that the BoE might also raise its insured deposit threshold.
In the UK, the deposit insurance laws passed when it was part of the European Union provided protection to consumers and businesses for up to £85,000 (about US$105,500), or up to €100,000 (about US$109,740) in the EU.