英语论文网

Coverage limit of the compensation scheme is a very important aspect in the deposit insurance system one of the reason for FSCS failing to prevent long queues outside the bank was coverage of compensation scheme. The event during the crisis has showed that the compensation scheme was clearly inadequate. When the depositors are not fully insured they are open to lose some money, so the depositors will avoid this risk. I have used the statistical data from authorities of The Treasury, FSA and Bank of England together published report to analyse this section.

The graph show 96% of the UK deposit account holders had deposits within 35000 and the remaining 4% had balance over 35000. This data show the banks clearly did not cover majority of depositors fully. From this graph we can see only a small number of depositors were protected until September 2007. It was rational for the depositors to run on the bank and withdraw their money. This event has proved that when a depositor is not fully guaranteed then he will run on the bank. Roughly about 92% of depositors were left unprotected.

Another graph below show the distribution of deposit account balances ninety six percent of the depositors contributed to fifty five percent of the total retail deposit balance in the UK and the remaining four percent of the account holders have contributed the rest of the deposits. Many depositors who had balance over 100,000. Most of these people had money in their accounts only for transaction purpose. The large depositors were left fully unprotected. An early withdrawal by them can create liquidity problem to the bank.

. The system did not protect both small and the large depositors and with this data I can clearly say that the coverage limit was inadequate. We also have also noticed the run on the bank reduced only after the government announced to guarantee the 100% of the deposits. This illustrates the coverage limit was insufficient.

3.2 CONSUMER AWARNESS

The Treasury, FSA and Bank of England together published discussion paper on financial stability and deposit protection, has shown the consumers lacked knowledge on the existing deposit insurance scheme with the recent consumer survey. I have used this graph to show the lack of consumer knowledge on the scheme was one of the main reasons for FSCS failing to play its role during the run on Northern Rock.