King urges ‘billions’ for depositor fund

Mervyn King, Bank
of England
(BoE) governor, told the
select committee
today banks should put ‘many billions’ of pounds into a
depositor protection fund planned under new legislation with lenders
contributing according to their risk level.

He stressed the scheme should be at least partly pre-funded and not rely on
banks putting up the money after a financial disaster had happened. The governor
also indicated BoE should have the power to initiate emergency measures to
rescue failing banks, the Guardian reports.

‘We will not have the right to initiate the trigger,’ King said. ‘We will
have the right to make a written recommendation to the FSA so that they pull the
trigger. That’s clearly not the same thing.’

King said BoE would have acted a lot sooner to save Northern Rock if it had
been given the power to use the proposed special resolution scheme. ‘That bank
would have been dealt with immediately under a special resolution scheme,’ he
said. ‘It couldn’t be because nationalisation was the only alternative. We
certainly would have handled it differently.’

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