IMA calling for £50,000 compensation limit for bank depositors

Responding to the joint HM Treasury, FSA and Bank of England consultation paper on financial stability and depositor protection, the Investment Management Association (IMA) is calling for a £50,000 compensation limit for bank depositors in the interest of restoring confidence amongst the public and market.

Bank depositors need a credible compensation regime which is well-communicated and financially robust. Such a regime would build upon the strengths of the existing Financial Services Compensation Scheme, and the banking industry would have a responsibility to explain it to consumers. We strongly urge them to do so. It is also crucial that legislation is not delayed and that implementation is swift.

IMA also stresses the importance of mark-to-market in bringing about a resolution of the credit crunch. Banks, their audit committees and their auditors need to ensure that assets are properly valued and this is best achieved through a system of fair value accounting. Only by exposing the "bad news" by marking such assets down to realistic prices can confidence in those markets be restored, trading resume and valuations recover. In any event, the absence of realistic and transparent information is likely to mean that the markets apply their own more exaggerated discounts.

Commenting, Guy Sears, Director, Wholesale at IMA, said: "We have heard much about the problems the current crisis is causing the banks but we would like to hear equally vocal support for an enlarged, and easy to understand, compensation scheme for their depositors. As it is, the UK's asset managers appear to be a lone voice calling for depositors' interests to be put first. A rise in protection to £50,000 is not beyond the capacity of the banks and would provide significant underpinning for consumer confidence in the financial system.

IMA also supports new powers to deal with failing banks. We want to know that FSA has a range of tools and the will to use them - the consequences of this may be unpalatable for an individual bank and its shareholders but the market as a whole will benefit.

The current crisis is not one of liquidity, it is of confidence. In their consultation, the Government is proposing measures to address the crisis and we shall continue to actively support them."