The safety threshold that protects bank customers’ cash when banks go bust is under threat from Brussels.
The first €100,000 of a customer’s savings currently is protected across the European Union if the bank gets into trouble.
Brussels is now backing a change in long-established rules, to prevent customers getting hold of their money for months, instead of the present seven day period.
Those affected could apply to be advanced small amounts of their own money to meet living costs but even these funds will be delayed by five days during which their accounts will be frozen.
Brussels politicians asked the European Central Bank for proposals which now have been issued in the form of an opinion paper – the fear is that this will become law.
Most banks that operate in the UK are covered by the Financial Services Compensation Scheme, which guarantees deposits up to £85,000. This is roughly equivalent to the ECB €100,000 limit.
British banks will not be affected because any changes are likely to be put in place after Brexit but the ECB’s protection limit applies to some foreign banks operating in the UK.
The paper suggests the ECB is willing to consider some drastic changes which might leave failed banks’ customers unable to get their money for months.
The ECB says the aim is to allow withdrawals to be suspended when a bank gets into trouble as this will prevent a run on the bank and its collapse and it also expects these powers ‘to be exercised only in extreme circumstances, if at all.’
Eurosceptics see these proposals as a warning that Brussels may have doubts about the stability of Europe’s banking system but other city pundits recognise the move as a continuation of the theme that when banks go bust, only the public suffers.