Silicon Valley Bank and Credit Suisse collapse sparks FSCS review

The Bank of England is considering reforms to the deposit guarantee scheme that would increase protection for savers beyond the current £85,000 limit, following the collapse of Silicon Valley Bank and Credit Suisse in March 2023¹. The review covers both the amount protected under the Financial Services Compensation Scheme (FSCS) and the speed at which pay-outs are made¹.

Under the existing rules, the FSCS protects up to £85,000 of savings per individual, per financial institution rather than per bank brand, and also covers mortgages, insurance and investments¹. Temporary high balances, such as money from a house sale, redundancy pay or an inheritance, are covered up to £1m for six months in some circumstances¹. The £85,000 limit is far less than the $250,000, around £200,000, protection on deposits offered in the US¹. The limit was previously raised from £32,000 to £85,000 after the 2007 and 2008 financial crisis, when customers lost hundreds of thousands of pounds at providers including Northern Rock and Icesave¹.

On pay-outs, the FSCS aims to pay covered deposits within seven days of a bank or building society failing, usually by cheque, which must be banked and cleared first, leaving a period when customers cannot access their funds¹. In a statement published on Tuesday 18 April, the Bank proposed speeding up the process by using electronic transfers instead of cheques as the main pay-out method¹.

Bank of England Governor Andrew Bailey does not believe the UK is heading for a large-scale financial crisis but has concerns about banks' ability to cope with an SVB-style event in the UK, questioning whether they hold enough liquidity¹. Speaking in Washington at a meeting of the International Monetary Fund, he pointed to the ease with which savers can move deposits from online accounts, saying "runs can go further much more quickly"¹. In the case of SVB, worried savers withdrew $40bn within 24 hours¹.

The FSCS has helped almost 68,000 people receive compensation in the last 12 months, according to an FSCS spokesperson, and between 1 February and 31 March 2023 it confirmed that 17 firms went out of business and is accepting claims against them¹.

Why it matters for households

The £85,000 limit applies per person, per financial institution, so savers with larger balances spread across brands owned by the same institution may hold less protection than they assume¹. Any increase to the limit would change how much of a deposit is covered if a provider fails, though the sources do not report a proposed figure or a date for a decision¹. The cost of higher protection would fall on the banking sector as a whole, according to Bailey's comments¹. The proposed switch to electronic pay-outs concerns the mechanics of compensation after a failure, not the amount covered¹. Not all firms hold FSCS protection: Revolut operates under an electronic money licence rather than a UK banking licence, so money is ring-fenced in a segregated account but does not receive direct FSCS protection, while Kroo, Starling and Monzo hold UK banking licences¹. The FSCS compensation limits page sets out the current caps, and what happens to money above the FSCS limit explains the position for balances over the threshold.

What happens next

The Bank of England published its statement on improving depositor outcomes in bank or building society insolvency on 18 April 2023, proposing electronic transfers as the main pay-out method¹. The sources do not report a timetable for a decision on the £85,000 limit, nor whether the proposals require legislation or consultation¹.