BOE proposes to expand the scope of reform of the deposit guarantee scheme (June 5)

The Bank of England is proposing to widen the scope of reforms to its deposit guarantee scheme to better protect depositors at failed smaller banks, according to people familiar with the matter. Following the previous collapse of Silicon Valley Bank, the BoE focused on raising the UK’s £85,000 insurance threshold (well below the US equivalent of $250,000) and securing more upfront funding for the Financial Services Compensation Scheme (FSCS) , so that depositors can get their money immediately instead of having to wait weeks. But officials are now proposing that the FSCS be used to stabilize smaller banks without loss-absorbing capital, according to two sources. Under the proposals, FSCS could provide funds to failed banks to keep them solvent until they are sold or closed. This would allow the BoE to lend to banks with confidence that they have the liquidity to honor depositor withdrawals, reducing the likelihood of a bank run.