The Treasury is understood to have raised the idea that banks should pay into a permanent cash pot that would be drawn on in the event of a banking failure, but banks are determined to resist this scheme. The Treasury launched its discussion with banks over the compensation scheme in the wake of the Northern Rock crisis that saw thousands of savers rush to pull their cash from Northern Rock accounts in fear that the bank was about to collapse. While the run on Northern Rock was described last week by Bank of England Governor Mervyn King as ‘rational’ behaviour by bank customers, it served to put even greater pressure on Northern Rock’s cash flows. Though the Government has guaranteed all at-risk savings in Northern Rock, the Financial Services Compensation Scheme would have paid only a proportion of deposits up to £35,000. If the participating banks are genuine in honouring their obligations under the scheme why the objection to a proportional prepayment to ensure readily available cash in the interim in the event of another NRock? Simply Switch | Loot | Jobs | Homes & property | London jobs | FindaProperty. read more

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