I would like to know what sum of money if placed on deposit with a
bank is guaranteed by the UK government or the Bank of England. i.e if
a deposit was placed with a bank and the bank went into liquidation
what sum would be refunded to each depositor by the Bank of England?

Dear essential-ga;

Thank you for allowing me an opportunity to answer your interesting question.

In the United Kingdom compensation is limited in all cases to a
maximum of 90% of each person?s total claim on a failed bank.

?UK banks are required to be members of, and to contribute to, a
deposit protection scheme. This entitles depositors with a failed
institution to receive 90% of their protected deposits, subject to a
maximum payment to any depositor of £18,000 (or ? 20,000 if greater).?

BARCLAYS: ?SUPERVISION AND REGULATION?
http://www.investor.barclays.co.uk/results/2000results/annual_report/fin_rev_58_sr.html

One can however, at his discretion, seek additional protection from a
private deposit insurer for greater coverage and for which he would be
responsible to pay the premiums himself.

The considerations for compensation guarantees by any deposit
insurance scheme in Europe are determined by a number of economical
and other factors as described in this excerpt from article published
by the CENTRE FOR CENTRAL BANKING STUDIES BANK OF ENGLAND:

?From the point of view of depositors, the most attractive scheme is
one which provides unlimited protection for those types of deposit
which qualify for protection. However, very few national schemes
provide this since moral hazard is thereby maximised and the costs -
which fall either on healthy banks or the government - are usually
regarded as excessive. Most schemes, therefore, set a ceiling on the
amount of compensation which can be given to a single depositor for
his insured deposits. Setting such a limit is a matter of judgement
and can only be decided in the light of the circumstances prevailing
in a particular country. One possible approach is to conduct research
into the average size of individuals? deposits and to relate the
maximum amount of compensation to that figure. Other economic data
which are relevant to this question are per capita national income and
average annual disposable income. The highest levels of insurance are
mainly found, not surprisingly, in the most developed countries -
which provide for compensation per person ranging from US$20,000 to
$100,000 and above. For most countries in the European Union
compensation per person of up to ECU20,000 (approximately US$26,000)
is obligatory - although member countries are, of course, free to
exceed this level if they wish.?

CENTRE FOR CENTRAL BANKING STUDIES BANK OF ENGLAND
http://www.bankofengland.co.uk/ccbs/publication/ccbshb09.pdf

So, in answer to your question, in England the current deposit
guarantee is, as a rule, 90% of the total deposit subject of course to
ceilings (if any) that might be imposed at the time.


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Tutuzdad-ga ? Google Answers Researcher



INFORMATION SOURCES

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UK

ENGLAND

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BANKING

REGULATORY

DEPOSIT INSURANCE

DEPOSIT PROTECTION

GUARANTEES

LAW

FEDERAL

Actually, the amount of protection is greater than that shown in the Answer, viz:

If a bank, building society or credit union goes out of business, the
scheme pays the first £2000 in full of the amount you have in accounts
with the bank, building society or credit union and 90% of the next
£33,000. This means a maximum compensation of £31,700.

http://www.fsa.gov.uk/consumer/consumer_help/compensation/mn_deposit.html

It must be stressed that this protection is only available for
Authorised Deposit Takers.

Correction:

'The first £2,000' should read 'the first £20,000'.

The scheme is not operated by the Bank of England or the UK
Government, but by The Financial Services Compensation Scheme ?FSCS?
which was created under the Financial Services and Markets Act 2000
(FSMA), and became operational on 1 December 2001. The bank must have
been authorised and supervised by the FSA and Bank of England.

"FSCS is an independent organisation, funded by authorised firms, and
covers investments, deposits and insurance. [...] FSCS provides
protection for customers of deposit-taking firms, being banks,
building societies and credit unions."
"The Scheme is triggered when an authorised deposit-taking firm goes
out of business. This would happen, for example, if it is subject to
an insolvency action, such as liquidation or administration, or when
the FSA concludes that the firm is unable to repay its depositors or
is likely to be unable to do so."

"Compensation limits
The maximum levels of compensation payable** under FSCS? rules are:
Claims against deposit takers:
£31,700 (100% of first £2,000 and 90% of the next £33,000), for the
total of a claimant?s deposits with that firm. Deposits in all
currencies are covered.

Claims against investment firms:
£48,000 (100% of first £30,000 and 90% of the
next £20,000).

**These limits apply to claims against firms declared in default after
1 December 2001. For claims against
firms declared in default before this date the rules (and compensation
limits) of the pre-existing
compensation schemes apply, although FSCS will handle the claim."

Source: Annual Report 2002/3
http://www.fscs.org.uk/files/documents/pdfs/wthgychlgsbgaor.pdf

Home Page
http://www.fscs.org.uk/

answerfinder-ga

Correction to Correction ...

Answerfinder is quite correct ...

I had it right first time!