Bailey (pictured), speaking in Washington at the Institute of International Finance, said that raising the level of protection around savers’ deposits, which is currently set at £85,000, was under consideration. He acknowledged that similar proposals were being looked at in the United States, where deposits up to $250,000 are protected.

The current UK deposit protection scheme is run by the Financial Services Compensation Scheme. Any proposed changes to deposit protections must be approved by the Treasury.

Customers who hold money with a UK-authorised bank, building society or credit union that fails will have deposits of up to £85,000 per person, per financial institution, automatically protected under the scheme. The figure rises to a maximum of £170,000 for joint accounts.

Proposals to increase deposit protections come in the wake of recent turmoil in the banking sector which included the collapse of Silicon Valley Bank in the US and its UK arm being bought by HSBC for a nominal £1.

The bank lost a third of its deposits in one day because of the speed in which customers can move or withdraw cash digitally.

Sponsored

How life insurance can benefit your health and wellbeing over the decades

Sponsored by Post Office

UBS stepped in last month to rescue Credit Suisse after the bank was on the brink of collapse. The speed at which the bank deteriorated sent shock waves through the global banking sector.

Stepping up protections

Bailey said: “I welcome the fact that the US authorities have announced a review of the deposit insurance system, in the UK we are considering improvements to the approach to depositor pay outs of smaller banks that do not have eligible liabilities.”

He continued: “So far we’ve focussed on speed of payout but going further and increasing depositor protection limits, I think it’s an issue we will have to consider. But we will also have to consider the cost implications of the banking sector as a whole.” He added: “There’s no free lunch.”

No evidence of another crisis

In reference to the run on both Silicon Valley Bank and Credit Suisse, Bailey said during an interview with the International Monetary Fund that the banking system was in a much more “robust condition” than it was in 2007.

“I do not see the evidence that we have the makings of a 2007/08 financial crisis, I really don’t see that. We have a lot more tools in our armoury to deal with these things than we did in 2007/08 when we were somewhat making it up as we hit the crisis.”

But he added that observations should be made of the recent events which included the speed of withdrawals from Silicon Valley Bank, which was aided by changes in how we communicate, such as through instant social media channels and the ease of digital banking.