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Savers will be exposed to losses unless loophole closed, warns bank boss

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23/11/2012
A loophole in banking reforms could leave taxpayers shelling out billions in the event of another financial crisis, Bank of England governor Sir Mervyn King has warned.
Savers will be exposed to losses unless loophole closed, warns bank boss

According to a report in the Telegraph, King has warned there is a lack of protection for depositors whose savings temporarily rise above £85,000 – the current compensation limit.

He said this needs to be addressed or else the government could come under pressure to resort to a state bailout again.

Paul Tucker, the bank’s deputy governor and man tipped to take over from King next year, said it was a “huge issue” which was unresolved. 

He told MPs yesterday: “The best laid plans [could] get blown up.”

Under the new proposals, banks would not need a taxpayer bailout in future, with bondholders instead forced to take deep losses if a bank is on the bring of collapse. However, depositors would suffer equivalent losses on anything above £85,000 as they rank alongside bondholders.

“For any big bank on any given day, there will be thousands of people who – through no fault of their own – happen to have deposits in their bank of more than £85,000,” King said. “There will be people who are going through a house purchase, who have received inheritance, others with a divorce settlement who are just keeping it for a couple of weeks.”

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