New deposit insurance system required to restore public confidence

Responding to the HM Treasury, FSA and Bank of England discussion paper on protecting depositors the Investment Management Association (IMA) has welcomed the Government's desire to maintain a well functioning banking system and believes that the interests of depositors and restoring public confidence are paramount.

We are therefore calling for a separate deposit insurance system to assure depositors that they would have immediate access to their money in the event of insolvency as the FSCS process, by its nature, cannot ensure this.

If future runs on banks are to be avoided customers must be confident that they can have access to their funds without delay. At present, there is no method of enabling such a safety-net other than financial support of the bank in question. The banking system needs to fund a new mechanism that will give depositors continuous access to their funds, irrespective of what happens to the bank. This would not replace the deposit protection scheme under the FSCS, but would complement it.

Commenting, Guy Sears, Director - Wholesale at IMA said: " The focus has to be on ensuring depositors have full confidence while critical banking services are maintained. While there may be room for debate about appropriate levels of depositor protection that is largely irrelevant in the current climate. Depositors' interests must be put at the forefront."