UK Considers Speedier Depositor Payouts and Other Deposit Protections

The United Kingdom is considering changes around deposit insurance, especially in smaller banks.

Noting that the United States is doing the same, Bank of England Governor Andrew Bailey said in a Wednesday (April 12) speech that the U.K. is considering improvements to its approach to depositor payouts for smaller banks, according to a transcript released by the Bank of England.

“Our work has thus far focused on the speed of pay-outs,” Bailey said in the speech delivered during an Institute of International Finance event. “Going further and considering increasing deposit protection limits could have cost implications for the banking sector as a whole. As with all things relating to bank resolution, there is no free lunch.”

The central bank head said during the speech that the U.K. must also consider the appropriate liquidity buffers that will allow banks time to respond to problems.

“We can’t assume that, going forwards, the current answer on the total size of liquidity protection is the correct one,” he said. “We saw with Silicon Valley Bank that with the technology we have today — both in terms of communication and speed of access to bank account — runs can go further much more quickly.”

During the speech, Bailey also said that stablecoins will need to be regulated like money, that policy intervention tools must be in place to deal with “black swans” that aren’t covered by stress tests, and that nonbank financial institutions must be monitored internationally, as they can transmit risk into the banking sector.

Overall, Bailey said that while there are problems in a few parts of the banking sector, they are not systemic.

“Today I do not believe we face a systemic banking crisis,” Bailey said. “When I look at the U.K. banks, they are well capitalized, liquid and able to serve their customers and support the economy.”

This speech came four days after it was reported that the Bank of England has begun hiring workers to develop its digital currency.

The central bank wants to create a team of up to 30 people to oversee its central bank digital currency (CBDC) project.

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