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.”