Deposit protection for consumer confidence and financial stability

23rd October 2012

Deposit protection is a vital ingredient for consumer confidence and has a key part to play in the world economic recovery. That’s the message from Mark Neale, the Chief Executive of the UK Financial Services Compensation Scheme (FSCS), to delegates at the International Association of Deposit Insurers conference in London.

Mr Neale says people need to know their money is safe to support the consumer confidence which is so vital to financial stability and recovery. Mr Neale says deposit insurance has come a long way since the Great Depression when the USA pioneered the idea.

Playing a central role in the bank failures of 2008/09, Mr Neale stresses how far the UK scheme has come in protecting more than 4.5m people and paying out some £26bn in compensation.

He says it is vital for consumers to be aware of the protection they enjoy through FSCS and other schemes.

“What you don’t know about, can’t reassure you. Deposit protection should reassure consumers and help them feel more confident to buy financial services products. However, we need to do more to raise awareness. FSCS now pays the vast majority of people back with seven days of a firm going bust. We need to make sure people understand our protection so we will be doing more to boost consumer awareness.

“But awareness is only half the battle. Consumers also have to believe you can deliver and, crucially, that you can deliver quickly so that they can go on living their lives. A promise that the cheque’s in the post is not enough.

“That’s why FSCS now aims to re-pay most savers within seven days of a failure. But we need to think about new ways to make it even easier for deposit guarantee schemes to secure continuity for consumers. For example, so called portable bank accounts might provide an option for transferring accounts to another provider. That would give the consumer uninterrupted service. It is something we should think about.”

Mr Neale rejects the notion that it is reasonable to expect most consumers to do due diligence on banks and to expose them to losses in the event of failure. The current limit of £85,000 protects 98-99% of all accounts, he says.

“More fundamentally, I don’t think we can afford in a crisis, when bolstering consumer confidence is critical, to expose large numbers of consumers to loss. The result of doing so is Northern Rock-style queues. There can be no orderly bank failures unless consumers can be protected. That demands comprehensive coverage, flexible arrangements and consumer awareness.”

More than 200 delegates from around the globe are attending the annual conference of the International Association of Deposit Insurers (IADI) on 24-25 October.