Questions about bail-in and customer deposits

Freedom of Information rules mean that, as a public authority, the Bank of England is obliged to disclose certain types of information, both proactively and on request.

Date: 3 September 2021

Disclosure:

  • ‘Due to the bail in rules how safe is customers money deposited in high street banks? If banks come in to financially difficulty can they take money out of customers accounts and use it to keep the bank afloat?
  • If the answer is yes, how much money would the banks be able to take out and use and when would the customers involved expect to get their money back, or would that money simply disappear?’

A key benefit of bail-in is to ensure that large banks can fail in an orderly way: continuing to provide key activities for the economy whilst losses are imposed on a failed bank’s shareholders and creditors, rather than depositors and taxpayers.

Deposits that are protected by the Financial Services Compensation Scheme (‘FSCS’) are legally excluded from bail-in. This generally includes deposits up to the amount of £85,000 per eligible person (but please see information on the FSCS website on for more information on which depositors and firms are covered by FSCS protection). This means that depositors who are fully protected by the FSCS will not lose money in a bail-in (or any other kind of bank failure).

With respect to depositors whose deposits are not fully protected by the FSCS, bail-in would be applied in accordance with the insolvency creditor hierarchy. This sets out the order in which shareholders, creditors and depositors of a company would receive recoveries should a bank be placed into an insolvency process (also referred to commonly as a ‘liquidation’).

In line with the creditor hierarchy, deposits not protected by the FSCS would only be subject to bail-in if losses are so high that subjecting all of the shareholders and a number of debt-holders to bail-in would not be sufficient (for further detail see page 19 of the Executing-bail-in-an-operational-guide-from-the-Bank-of-England). This is because of the preference in the creditor hierarchy from which certain deposits, including those of retail depositors, benefit.

So, whilst any holder of shares in a bank may suffer losses in respect of those shares in bail-in, any deposits they may have with that bank would be subject to the levels of protection described above.

More information on this topic can be found on the Resolution pages and in the The Bank of England approach to resolution.

  • ‘The FSCS bank protection limit is £85,000 does this mean that no money under the amount of £85,000 would be able to be taken under bail in rules or do bail in rules over ride the FSCS scheme?’

The Bank of England, which includes the Prudential Regulation Authority (‘PRA’), works with the FSCS particularly when we have concerns that a firm is at risk of failure. Our resolution regime operates alongside the depositor protection regime. If a firm’s failure would otherwise result in losses for depositors, the FSCS will protect eligible depositors, up to £85,000. In some specific situations, it can be more, for example, if a depositor has just sold a house. Information on FSCS compensation limits.

It is important to note that a PRA-authorised bank or building society may use several brands. This means that if you have money in multiple accounts with banks that are part of the same banking group (and share a banking licence) they are treated as one bank and you are only protected up to a total of £85,000 across all of the accounts. Details of the banking brands that share FSCS protection.

  • ‘How safe is the FSCS bank protection limit? If multiple banks get into financial problems at the same time, will there be enough money in the scheme to cover all potential customers money?’

The FSCS is funded by levies paid by firms that are authorised by the PRA and the Financial Conduct Authority. Further information is available in the FSCS Annual Report

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