FSCS reflects 10 years after bank failures

Rising to the challenge when it really mattered

FSCS reflects on the 10 year anniversary of the failure of five banks including Bradford & Bingley and Icesave.

In Autumn 2008, in the midst of the financial crisis, five financial institutions collapsed affecting over 4.08 million retail bank accounts in the UK. The most prominent were Bradford & Bingley, which failed on 27 September 2008, and Icesave, which failed on 8 October 2008.

The Financial Services Compensation Scheme (FSCS) played a pivotal role in protecting the customers of those banks. From the seamless transfer of the accounts of 2.5m savers with Bradford & Bingley to Santander – with no changes to their account details or terms – to the online claims process developed specifically for more than 200,000 retail savers with Icesave.

Commenting on the tenth anniversary of the collapse of Bradford & Bingley and Icesave, Mark Neale, FSCS Chief Executive, said: “At FSCS we had first-hand experience of the impact of these failures on the banks’ customers.

“In the first week of October 2008, our compensation limit was increased twice to reassure consumers during a period of market uncertainty.

“Our role in protecting members of the public came to the fore over the autumn ten years ago, as FSCS made payments totalling nearly £20 billion to protect consumers. The cost to FSCS of Bradford & Bingley’s failure alone was £15.65 billion.

“These two failures in particular followed very different routes, with Bradford & Bingley seeing the transfer of their book to Abbey (now Santander) over a weekend, coordinated by the Government, while Icesave was perhaps the most prominent failure that FSCS has paid compensation direct to consumers for since our creation in 2001.

Public trust in the banking system is essential for the economy to function. When people needed FSCS in 2008 and 2009 we were there to help. Since then we have made, and will continue to make, improvements to our service and systems so we are ready to respond if another major failure should occur. Consumers can be reassured that in the event of a future bank or building society failure, FSCS will protect them and ensure that they automatically receive their money back within seven days.

FSCS has also repaid the government in full for the money borrowed in 2008 to fund the payments made. The Bradford & Bingley loan was repaid from the proceeds of sales of its assets, completed this year; and the Icesave debt was repaid from recoveries made in its Icelandic liquidation.”

For more information call Max Kelly at Hanover Communications on 07590 120 533 or fscs@hanovercomms.com.

Key statistics from Autumn 2008

  • Approximately £20.4 billion in compensation was paid by FSCS to customers of the five banks
    • £15.65 billion for Bradford & Bingley
    • £464.7 million for Heritable Bank
    • £1,400.9 million for Icesave
    • £2.58 billion for Kaupthing, Singer & Friedlander
    • £237.4 million for London Scottish Bank
  • Approximately 4.08 million bank accounts were protected by FSCS following the failure of the five banks (Please note the below figures do not reflect payments made after 31 March 2010)
    • 3.6 million for Bradford & Bingley
    • 22,684 for Heritable Bank
    • 292,579 for Icesave
    • 163,822 for Kaupthing, Singer & Friedlander
    • 8,291 for London Scottish Bank

Improvements since the 2008 bank failures:

  1. FSCS invested in an ongoing programme to improve its systems and processes;
  2. FSCS implemented its consumer awareness programme which has resulted in the current level of awareness standing at c.80%;
  3. The current deposit compensation limit is £85,000;
  4. Banks, building societies and credit unions are required to provide FSCS with single customer views (SCVs) of all their retail deposit customers – FSCS carries out a programme of testing the industry’s SCV files;
  5. FSCS pays customers of banks, building societies and credit unions within seven days of a failure, although this is usually done much faster – within two to three days – last month FSCS completed simultaneous pay-outs on two credit unions within a day;
  6. FSCS works with the Bank of England to prepare and plan;
  7. The UK and FSCS are seen as setting the standards for best practice.