More protection for bank savers
Savers will be given greater protection if a bank collapses under long-awaited proposals due to be announced by the Government on Thursday.Chancellor George Osborne's banking white paper follows last year's recommendations by the Independent Commission on Banking (ICB), led by Sir John Vickers, on how to make the sector safer and give extra security to savers.
Ahead of the Chancellor's annual Mansion House speech, Mr Osborne is expected to press ahead with the ICB's more contentious proposals that will see individual depositors ranked above bondholders and corporate creditors when it comes to recovering cash owed after a bank failure.
But he is considering an important concession to banks angered by ICB proposals to ring-fence depositor cash from riskier operations and investment banking.
The Government is planning to broaden the range of activities allowed within ring-fenced businesses.
This could include simple hedging tools, such as those to protect consumers from interest rate and currency fluctuations, as well as loans to small businesses.
The move is likely to be welcomed by banks, which have lobbied hard for a wider scope of allowed activities.
But the Government is not shying away from key plans put forward by the Vickers commission to give savers preference.
The banking sector has argued it would push up the cost of business loans and mortgages, as bondholders could demand banks pay higher interest rates to offset the greater risk they face on bank investments.
The British Bankers' Association argues that the depositor guarantee scheme - under which £85,000 of deposits per person is insured - is adequate to offer consumer protection.
This could include simple hedging tools, such as those to protect consumers from interest rate and currency fluctuations, as well as loans to small businesses.
The move is likely to be welcomed by banks, which have lobbied hard for a wider scope of allowed activities.
But the Government is not shying away from key plans put forward by the Vickers commission to give savers preference.
The banking sector has argued it would push up the cost of business loans and mortgages, as bondholders could demand banks pay higher interest rates to offset the greater risk they face on bank investments.
The British Bankers' Association argues that the depositor guarantee scheme - under which £85,000 of deposits per person is insured - is adequate to offer consumer protection.
© 2013 Press Association