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Financial Services Compensation Scheme
(Redirected from FSCS)The Financial Services Compensation Scheme (FSCS) was intended to protect savers money in the event of the Bank or Building society, that they deposited money with, going bankrupt.
Prior to the Northern Rock Bank run the Financial Services Compensation Scheme only fully protected the first £2,000 and then 90% of the next £33,000. Above £33,000 there was no protection. During the bank run the Chancellor made a verbal announcement guaranteeing all savers deposits.
Prior to the Northern Rock Bank run there was only £4.5million in the FSCS scheme. The FSA who runs the scheme has stated that it works on a "pay as you go basis" so that in the event of claims exceeding the £4.5million deposit the FSA would ask the Banks to deposit more money.
After the Northern Rock Bank run Alistair Darling promised a review of the scheme such as changing it to one based on European or U.S schemes and with the intent of guaranteeing amounts up to £100,000. On the 1 October 2007 the FSCS scheme was amended but only to protect the first £35,000 i.e. only an extra £3,300 would be guaranteed. The reason for the change was that (a) the Banks had voiced concerns over the cost of such a US/European scheme and (b) they argued that if the first £100,000 was fully protected then this might disscourage savers from investing in riskier products such as shares. While the proposed scheme would cost the Banks more money this might have the advantage of making the banks more cautious over who they lend savers money to. In addition, the savers deposit money in a Bank as it is suppossed to be zero risk and thus they get a lower return on their money. If investors wanted to then they could invest in higher return and higher risk products such as shares. However, this might not be a suitable strategy for say either pensioners or people who need their money at short notice. It is shame that this Government appears to have given in to pressure from big buisness (banks) as it is time that banks started to take care with who they lend money to and the cost of this US/Europen scheme might just force them to do this!!
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