Regimes for Handling Bank Failures: Redrawing the Banking Social Contract - speech by Paul Tucker

In the third of a series of recent speeches on reshaping the 'social contract' for banking in the light of the financial crisis, Paul Tucker - Deputy Governor for Financial Stability - discusses today at the British Bankers' Association's Annual International Conference the need for banks to run themselves in a way that facilitates the orderly management of crises, including through deposit insurance and the resolution of distressed firms.

Published on 30 June 2009

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".

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