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June 5, 2009

FSA extends deposit protection for merging building societies

by Gill Montia

Story link: FSA extends deposit protection for merging building societies

The Financial Services Authority (FSA) is proposing to extend interim rules introduced last year that allow separate compensation cover for customers with deposits in two merging building societies.

The regulator is also proposing that the £50,000 protection per individual allowed under the Financial Services Compensation Scheme should be applied to customers of a building society which merges with a subsidiary of another mutual society and to customers whose deposits are transferred from a failed firm to another deposit taker, where they already have an account.

The FSA’s retail markets managing director, Jon Pain, explains: “The interim rules … helped existing savers who wished to keep below the deposit protection limit and also served to reduce withdrawals by savers from successor firms driven purely by compensation considerations.”

The measures will remain in place until December 2010, at which time proposed changes to the EU Deposit Guarantee Schemes Directive should be settled.

The Directive could involve the introduction an EU-wide common deposit protection limit of €100,000 from 31 December 2010.

However, the amendment will only take effect “if the EU Commission reports that such a change would be appropriate and financially viable for all EU Member States”.

Analysts are expecting the UK’s mutual sector to see more mergers in the months ahead.

Recent reports in the press have suggested that some building societies have levels of toxic debt on their balance sheets that could eventually force participation in the Government’s Asset Protection Scheme.


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