Britain’s chancellor said on Thursday that his government needed to look at raising the level of protection for bank customers given the speed 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 review and he would look at raising the limit if regulators recommended it.
“We need to look at deposit insurance and keep that under review,” Hunt said. “If there is a decision [from regulators] that we should increase [the £85,000 limit], it will come across my desk as to how we finance that increase.”
The chancellor was responding to a speech by Bailey on Wednesday in which he floated the idea of deposit insurance reform and suggested that depositors needed more reassurance that their funds would be safe in banks.
Hunt said that raising the limit would currently require an immediate call on public money because there was no reserve of money to pay depositors quickly as there was in the US.
He added that having a fixed level of deposit guarantees had been carefully thought through 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”.
California-based SVB imploded last month. A potential collapse of its British arm, SVB UK, was averted when it was purchased for £1 by HSBC, avoiding the need for the government to step in to protect depositors.
Hunt said one of the lessons of the recent banking turmoil was that banks could fail more rapidly than in the 2008 crisis. “The thing that was most noticeable about Silicon Valley Bank was the speed at which deposits were transferred. Word gets round on social media. And so we need to make sure we are constantly updating our stress testing to deal with situations that might occur.”
However, the chancellor stressed that the UK banking sector was resilient and much stronger than in 2008. “I’m very confident that, notwithstanding the speed that deposits can move, we have a very resilient banking sector,” he said.
He added that the stable financial system was one reason to think the IMF was wrong in forecasting that the UK economy would shrink this year and that the fund had been persistently too gloomy about UK prospects.
“They’re just one of a number of forecasters,” he said. “The IMF have undershot on the British economy for quite a long time — I think every year since 2016 bar one, they have undershot.”
The chancellor was adamant that UK growth prospects depended on getting a fair settlement with junior doctors and other striking public sector workers, even though official data released on Thursday showed that walkouts depressed growth in February.
“Of course there is a short-term impact [on growth] from strikes and it’s incredibly regrettable when it comes to the impact on patients . . . but there would be a much longer and more damaging growth impact if we were to try to settle these strikes with pay awards that fuelled core inflation,” Hunt said.