Deposit protection scheme must be responsibility of the banks and not the taxpayer

1.20.32pm BST (GMT +0100) Tue 1st Jul 2008

Vince Cabel MP - critical of the government

Commenting on Alistair Darling's proposals aimed at protecting savers' deposits, Liberal Democrat Shadow Chancellor, Vince Cable said "The run on Northern Rock has made it clear that the system of deposit protection must be improved to prevent future runs on banks."

Continuing Vince said "Although it is right that the level of compensation is raised, the Chancellor has clearly buckled under pressure by cutting the maximum level of protection from his original proposal of £100,000, to £50,000."

"It is also less than clear whether compensation is 90% of the sum, as now, or 100% as operated following the Northern Rock panic."

"If there is to be confidence in the banking system it is critical that there is rapid repayment from the Financial Services Compensation Fund when a bank goes under. The only way this can happen is for the banks to make 'up front' payments into the Fund so that there is a pool of funds to draw on. We must be clear that deposit protection is the responsibility of the banks, not the taxpayer."

"The bigger issue now is how vulnerable the banks currently are to a future crisis of confidence, as it is clear that banks have underestimated their losses from a deteriorating housing market. Since the leading banks are implicitly underwritten by the Government, acting as lender of last resort, we urgently need a clear statement of the process by which failing banks will in future be rescued and/or taken over by the Government."