Paul Tucker considers how the banking system should bear the cost of insuring retail depositors against loss. He explains the Bank of England's reasons for preferring a risk-based, pre-funded system of deposit insurance. To head off risk-taking by banks on the back of de facto 100% deposit insurance for retail depositors, contributions to the deposit insurance system should be risk-based to offset the incentives otherwise created. And, he says, "..any such insurance scheme must be pre-funded; it is no good trying to collect levies from riskier banks after they have gone bust".
Published on
30 June 2009
Press release