Should savers lose out in the event of a banking collapse?
There have been a number of interesting propositions and comments regarding the future of banking regulations in the UK although one yesterday from the Institute of International Finance has caught the eye of many people in the UK. Should savers lose any rights to protection in the event of a banking collapse?
While in the UK there is compensation system in the event of a banking collapse this does not cover 100% of deposits. However, a number of questions are now being asked about the future set up of the UK banking arena and whether in fact shareholders, unsecured and uninsured creditors should also lose out in the event of a banking collapse?
While in theory there is nothing wrong in looking towards potentially spreading any risk amongst investors and depositors, not to mention taxpayers, how would this impact upon the banking sector as a whole?
The problem is that if protection was taken away from savers then potentially we could see a massive flight of funds towards so-called "stronger financial institutions". This would then force "weaker financial institutions" to offer better rates to offset the perceived risk which would then polarise the sector even more. Moving towards this potential solution has very many dangers!
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