Tyrie: depositor protection drop is "absurd"

Commenting on the policy statement published today by the PRA announcing that the deposit protection limit will be reduced from £85,000 to £75,000, Andrew Tyrie MP, Chairman of the Treasury Committee, called the decision "absurd".

Related topics:  Finance News
Rozi Jones
3rd July 2015
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Tyrie commented:

“It is absurd that the 16% depreciation of the euro largely brought about by the crisis in the Eurozone in general, and the Greek crisis in particular, should be forcing a reduction in the level of protection available to UK depositors. It makes no sense to fix deposit guarantees, which need to be stable to win public confidence and which should be providing certainty and predictability for ordinary savers, to a volatile variable like the exchange rate.

“In this respect, the EU Deposit Guarantee Schemes Directive is defective. It has been designed without adequate consideration for the requirements of those, like the UK, in the EU but outside the Eurozone. By one means or another, the Directive needs to be injected with a dose of common sense."

He added that most savers arrange their finances on the reasonable assumption that the deposit cover will be stable, and would expect that any changes would be in an upward direction, to reflect inflation and growth.

He continued:

“The six-month transitional period before the lower limit takes effect is welcome. But it will do nothing to protect customers from the risk that they might have to make further adjustments if the exchange rate were to move sharply again. Furthermore, each time the limit is changed all deposit-taking firms need to make a lot of adjustment to the way they do business, carrying a substantial cost that will ultimately be borne by customers.

“Much more flexibility is needed. Currently only a 5% margin around the €100,000 limit is permitted by the Directive. This could almost certainly be increased substantially without creating prudential risk. No doubt some flexibility and common sense could be brought to bear by other means. I will be writing to the Chancellor to ask that he raise this issue with his EU counterparts. He may need to be robust – this won’t matter a scrap to the Eurozone. Something will clearly have to be done.”

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