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Fresh rules to guarantee savings Fresh rules to guarantee savings
(about 18 hours later)
The scheme to protect savers with money deposited in UK banks and building societies has been expanded, following the recent run on the Northern Rock.The scheme to protect savers with money deposited in UK banks and building societies has been expanded, following the recent run on the Northern Rock.
The current deposit protection scheme will now guarantee a saver's first £35,000 of savings.The current deposit protection scheme will now guarantee a saver's first £35,000 of savings.
Chancellor Alistair Darling said this was the first stage of a wider reform to the system that protects customers.Chancellor Alistair Darling said this was the first stage of a wider reform to the system that protects customers.
But the British Bankers' Association (BBA) said more extensive reforms would be harder to achieve.But the British Bankers' Association (BBA) said more extensive reforms would be harder to achieve.
Savers need to be sure that they can get their money out if they need to Alistair DarlingSavers need to be sure that they can get their money out if they need to Alistair Darling
"No saver in Northern Rock came close to needing the scheme, and ours remains one of the most generous in Europe," said the BBA's chief executive Angela Knight."No saver in Northern Rock came close to needing the scheme, and ours remains one of the most generous in Europe," said the BBA's chief executive Angela Knight.
"We still need urgently to understand why our regulatory framework did not break the chain of events which resulted in such dramatic scenes outside branches of a British bank," she added."We still need urgently to understand why our regulatory framework did not break the chain of events which resulted in such dramatic scenes outside branches of a British bank," she added.
CompensationCompensation
The Chancellor has used his existing powers to raise the limits of the current Financial Services Compensation Scheme (FSCS) with immediate effect.The Chancellor has used his existing powers to raise the limits of the current Financial Services Compensation Scheme (FSCS) with immediate effect.
Any additional legislation may protect savings of up to £100,000 and attempt to ring fence savers' assets should a bank go bust.Any additional legislation may protect savings of up to £100,000 and attempt to ring fence savers' assets should a bank go bust.
"Savers need to be sure that they can get their money out if they need to," said Mr Darling."Savers need to be sure that they can get their money out if they need to," said Mr Darling.
If it is very expensive then ultimately, of course, there will be consequences in terms of costs, charging structures and so forth Angela Knight, BBAIf it is very expensive then ultimately, of course, there will be consequences in terms of costs, charging structures and so forth Angela Knight, BBA
"But for the future, we now need to put in place a better regime," he explained."But for the future, we now need to put in place a better regime," he explained.
Under the old FSCS levels, savers were given a guarantee for 100% of just their first £2,000 of their savings, and 90% of the next £33,000.Under the old FSCS levels, savers were given a guarantee for 100% of just their first £2,000 of their savings, and 90% of the next £33,000.
This would have left them with just £31,700 of their savings had the Northern Rock gone into administration.This would have left them with just £31,700 of their savings had the Northern Rock gone into administration.
This was not enough to calm nerves when the bank had to go to the Bank of England for an emergency loan.This was not enough to calm nerves when the bank had to go to the Bank of England for an emergency loan.
Thousands of savers queued outside Northern Rock branches or went online and withdrew several billion pounds over just a few days - until the Treasury stepped in and guaranteed all their savings.Thousands of savers queued outside Northern Rock branches or went online and withdrew several billion pounds over just a few days - until the Treasury stepped in and guaranteed all their savings.
No unlimited guaranteeNo unlimited guarantee
Mr Darling told BBC Radio 4's Today programme that the first £35,000 of people's savings would be protected straight away.Mr Darling told BBC Radio 4's Today programme that the first £35,000 of people's savings would be protected straight away.
During the second stage of the reform process he hoped to "separate savers' money from the rest of a bank's assets, so that savers' money is as much protected as possible".During the second stage of the reform process he hoped to "separate savers' money from the rest of a bank's assets, so that savers' money is as much protected as possible".
To do this the government needed to go through a process of consultation with the banking industry, followed by new legislation, Mr Darling said.To do this the government needed to go through a process of consultation with the banking industry, followed by new legislation, Mr Darling said.
The chancellor, however, ruled out an unlimited protection of savings.The chancellor, however, ruled out an unlimited protection of savings.
He said the government would study savings protection schemes around the world and indicated that the government might aim to protect savings up to £100,000.He said the government would study savings protection schemes around the world and indicated that the government might aim to protect savings up to £100,000.
'Market distortion''Market distortion'
Detailing the changes the Financial Services Authority said that "at a time of market uncertainty" it was important for consumers to know their deposits were properly protected.Detailing the changes the Financial Services Authority said that "at a time of market uncertainty" it was important for consumers to know their deposits were properly protected.
The new rules apply only to customers of banks and building societies that default on or after 1 October 2007.The new rules apply only to customers of banks and building societies that default on or after 1 October 2007.
The Association of British Insurers warned that a more generous savings guarantee scheme could distort the savings market, drawing people towards cash savings and away from investment products.The Association of British Insurers warned that a more generous savings guarantee scheme could distort the savings market, drawing people towards cash savings and away from investment products.
Angela Knight of the BBA warned that higher compensation levels might mean higher charges for bank customers.Angela Knight of the BBA warned that higher compensation levels might mean higher charges for bank customers.
"If it is very expensive then ultimately, of course, there will be consequences in terms of costs, charging structures and so forth," she told the BBC."If it is very expensive then ultimately, of course, there will be consequences in terms of costs, charging structures and so forth," she told the BBC.

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