Fscs £85k protection

masonic

Nova1307 said:

Just a thought but shouldn't the £85k limit track inflation in some way? Maybe not fully but partially. The level of protection must have reduced quite a bit in real terms in recent years. Surely it would make sense for it to be reviewed every 5 or 10 years. 

The FSCS was established in December 2001 and at that time the limit was 100% of the first £2,000 and 90% of the next £33,000, so effectively £35k had some coverage. RPI in Dec 2001 was 173.4.

Today the limit is 100% of £85,000 (2.57x), while RPI is 376.6 (2.17x), so it is currently ahead of even this more generous measure of inflation. There was a recent proposal to review it every 3 years.

Albermarle said:

Cashmygiro said:

Nova1307 said:

Just a thought but shouldn't the £85k limit track inflation in some way? Maybe not fully but partially. The level of protection must have reduced quite a bit in real terms in recent years. Surely it would make sense for it to be reviewed every 5 or 10 years. 

I remember once that they actually reduced it then put it back up to 85K again.

I think that is because it was actually based on €euro 100K and it was changed after a sustained change in the exchange rate . Not 100% sure though.

Post-GFC (June 2009), it was harmonised across the EU to be at least equivalent to EUR50k (we had already raised it to £50k in October 2008), then in December 2010 it was raised again to be equivalent to EUR100k.

Beddie

In reality, the government will cover all deposits if a UK bank fails. We know that. So they should put it up to £250k or some other larger notional sum, to stop all the worriers panicking when they get to £84.5k in an account.

masonic

Beddie said:

In reality, the government will cover all deposits if a UK bank fails. We know that. So they should put it up to £250k or some other larger notional sum, to stop all the worriers panicking when they get to £84.5k in an account.

We don't know that, and I doubt the government would step in to cover more than £85k if an individual UK bank failed. There are all sorts of weird and wonderful UK banks operating today, very few of them would give rise to a systemic threat if they disappeared through their own failings. I wouldn't take a one-off event like the GFC as setting a precedent in that regard. There have been a number of credit union failures since then, where the £85k limit has been applied. Likewise for investment firms that have collapsed.

badmemory

I certainly wouldn't want to risk any of my savings by assuming that the gov would cover more than promised.

friolento

badmemory said:

I certainly wouldn't want to risk any of my savings by assuming that the gov would cover more than promised.

Worth remembering that FSCS is an industry body, not a government one. Thus the cover is provided by the industry. But I agree, I would not assume that more than £85k would be covered, either.

masonic

friolento said:

badmemory said:

I certainly wouldn't want to risk any of my savings by assuming that the gov would cover more than promised.

Worth remembering that FSCS is an industry body, not a government one. Thus the cover is provided by the industry. But I agree, I would not assume that more than £85k would be covered, either.

It's funded by a levy on the industry, but it is created through legislation passed by the government that creates an obligation upon the FCA to establish the scheme. The relevant legislation is Part 15 of the Financial Services and Markets Act 2000: https://www.legislation.gov.uk/ukpga/2000/8/part/XV

The industry has no influence over the scheme, other than through lobbying government.

Linton

Beddie said:

In reality, the government will cover all deposits if a UK bank fails. We know that. So they should put it up to £250k or some other larger notional sum, to stop all the worriers panicking when they get to £84.5k in an account.

Isn’t the main purpose of the £85K limit that the government is not politically compelled to provide an unlimited guarantee?

Beddie

Linton said:

Beddie said:

In reality, the government will cover all deposits if a UK bank fails. We know that. So they should put it up to £250k or some other larger notional sum, to stop all the worriers panicking when they get to £84.5k in an account.

Isn’t the main purpose of the £85K limit that the government is not politically compelled to provide an unlimited guarantee?

Spot on! It used to be linked to the €100k EU limit, but now we do our own thing it's stayed there. I really think it should be much higher, for example it's $250k in the USA. And I also stick by my assertion that they would cover all deposits if a UK bank went bust. Not sure about the Revoluts of this world though.

Of course, I may be wrong, but we will only find out if it happens and even then, I'm not keen on being the one with a big deposit that gets caught out! The moral of the story - I haven't a clue