UK Chancellor plans to increase deposit guarantees following SVB

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Britain’s chancellor said on Thursday his government should consider increasing the level of protection for bank customers given the rate at which deposits fled Silicon Valley Bank last month.

Speaking on the sidelines of the IMF spring meetings in Washington, Jeremy Hunt echoed comments by Andrew Bailey, Governor of the Bank of England. He said the deposit insurance scheme was part of the financial system that needed to be overhauled and that he would consider raising the limit if regulators recommended it.

We need to look at deposit insurance and keep looking at it, Hunt said. If there is a decision [from regulators] that we should increase [the 85,000 limit]I will see on my desk how we finance this increase.

The Chancellor was responding to a speech by Bailey on Wednesday in which he floated the idea of ​​deposit insurance reform and suggested depositors needed more assurance that their funds would be safe in banks.

Hunt said increasing the limit would currently require an immediate call for public money because there was no reserve of money to pay depositors quickly as was the case in the United States.

He added that having a fixed level of deposit insurance had been carefully thought out to give confidence to the vast majority of retail investors, but that he would defer to the Bank of England and the [Prudential Regulation Authority] as to what the precise level should be.

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California-based SVB imploded last month. A potential collapse of its UK branch, SVB UK, was averted when it was bought for 1 by HSBC, thus saving the government from having to intervene to protect depositors.

Hunt said one of the lessons of the recent banking crisis was that banks could fail faster than in the 2008 crisis. The most remarkable thing about Silicon Valley Bank was the speed at which deposits were transferred. The news is circulating on social media. So we need to make sure that we are constantly updating our stress tests to deal with situations that may arise.

However, the Chancellor stressed that the UK banking sector was resilient and much stronger than in 2008. I am very confident that, despite how fast deposits can move, we have a very resilient banking sector, he said. -he declares.

He added that the stability of the financial system was one of the reasons the IMF was wrong to predict the UK economy would contract this year and that the fund had always been too gloomy about the UK’s outlook.

They are just one of many forecasters, he said. The IMF has underestimated the UK economy for quite a long time, I think every year since 2016 except one they have underestimated.

The Chancellor insisted that the UK’s growth prospects hinged on securing a fair settlement with striking young doctors and other public sector workers, even though official data released on Thursday showed that walkouts dampened growth in February.

Of course, there is a short-term impact [on growth] strikes and that’s incredibly unfortunate in terms of the impact on patients… but there would be a much longer and more damaging impact on growth if we tried to settle those strikes with salary rewards that fuel the underlying inflation, Hunt said.

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