Osborne to reveal banking measures
Jun 11 2012
Savers will be given extra protection from bank collapses despite fears the measures will push borrowing costs up for households, the Chancellor is set to confirm this week.
George Osborne's Mansion House speech on Thursday is expected to reveal controversial proposals for depositors to get their money back ahead of bondholders and other creditors if a bank collapses, according to The Sunday Times.
The plan to give depositors preference is popular with consumer groups, but big lenders say bondholders will demand higher interest rates to cover the increased risk, which will ultimately push up the cost of lending to businesses and households.
The idea was originally suggested by the Independent Commission on Banking (ICB), which was asked to conduct a thorough review of the sector to help reduce the chances of another banking crisis.
But Angela Knight, of the British Bankers' Association, told the newspaper: "We already have a good deposit guarantee scheme.
"If you have depositor preference, bondholders will say they are so far down the queue they want more for their investment."
Mr Osborne's white paper is expected to adopt many of the ICB's suggestions, including forcing banks to ring-fence their retail and investment operations.
Meanwhile, The Sunday Telegraph reported that the proposals will give more power to the Bank of England to enforce the reforms.
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