How does FSCS protection actually work?

Doesn’t say anything more than the standard information everyone already knows. If a FSCS-protected bank fails catastrophically, where do the compensation funds actually come from?

Is it backed by HM Treasury? Is there a point where HM Treasury wouldn’t pay up?

Yes, FSCS would borrow the money from HM Treasury (or the Bank of England) as a loan.

It borrowed over £18bn in 2008.

The authorities will always pay - otherwise the FSCS scheme would be worthless and cause much greater problems/panic.

After all, the authorities can just create money if they need too.

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Right so it seems the answer is BoE gives them cash by QE or however they want.

But of course there is a limit to where they are unable to regardless of “greater problems/panic” which isn’t made clear. (I’m aware if this is the case we probably have more urgent things to worry about).

It’s also not clear what happens if, for whatever reason, FSCS is unable to pay back the loans it needs to take out.

What limit? As it’s in GPB, there is no limit.

If it was a foreign currency, then that might be an issue

The money is repaid from the fees regulated firms pay

Of course there’s a limit.

Right. And how much exactly do the firms currently contribute on an average year?

There is no limit - the terms of any loan would change to make it affordable.

Why not do your own research? Perhaps start with their website and annual report.

I’m out…

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I don’t know why you deny there’s a limit. It might be extreme but there’s a point somewhere where it would be too much.

I did research but the issue is that their website fails to mention some of these basic facts.

It’s also confusing that the levies over the last few years have been £500m-£1bn/year yet there’s still £18b owed from 12 years ago. How is this going to be paid back if there are further issues similar to 2008? Like a 10x worse situation than that would be almost 10% of GDP which is quite a lot to just generation via QE and expect they’ll get paid back in levies over a century.

What if the FSCS doesn’t have enough money?

if the fund didn’t have enough cash, the Government will lend it the money, and it will then try to get it back from the insolvent bank’s assets and by putting a levy on the banks for years to pay it back.

Yes, we know what they say. The point is how this would practically work in various scenarios.

They still owe £18b (18-39 or, at current rates, 90 years worth of levies) from 12 years ago and that was just five institutions failing (the vast majority just one institution — B&B).

I would say that if the system fails to the point that the FSCS doesn’t work, we probably have far bigger problems facing us than that :grimacing:

12 years ago is nothing. There were countries still paying off debts from the Marshall Pact for a longer period than that, for example.

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I admitted this in the first post. If that’s the best answer there is, I guess that’s it… :slight_smile:

That’s fine. It was expected they could pay it back eventually. It’s pretty hard for an entire country to fail (or at least it seemed that way in 1948, I’m not so sure now).

But one institution failing is currently setting us up for, at current rates, 78 years. Therefore just five institutions would need almost 4 centuries (which is where I’d start saying it is a significant length of time).

Do your research. The FSCS repaid this -

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I did, that’s where I got the info from but it seems it was incorrect. Your link is only regarding the £15.56b though.

According to the 2018/2019 Plan and Budget there’s still £4.7b left. But yes, that makes it only about 10 years per institution which might be a bit more manageable though not if several large ones come at once.

It’s a question ultimately of realpolitik, and there’s nothing more than a crystal ball after a certain point


If we hadn’t bailed out those savers who had their money stashed in Icelandic banks, the 2008 crash wouldn’t have been half as bad.
And as for the UK banks, they should have been left to succeed or fail on their own merits.

May sound harsh, but it was the bank’s own fault they got themselves into that mess.
Why should the rest of us have to prop them up???

No, they have paid it off in full.


  • We’ve recovered £20 billion from the 2008 bank failures and repaid all £20.5 billion borrowed from HM Treasury that year.

Most of the claims the FSCS deal (300k+) are not to do with bank savings but dealing with investments insurance or pensions firms that have collapsed.

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