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Data from British Building Society Association show when the coverage is 35000 then 95% of retail account depositors are being covered, so the current scheme covers majority of depositors accounts. About seventy percent of account balance has been covered by the current scheme, majority of depositor are been protected by the current scheme. A further increase to 75,000 only covers three percent more individuals. But it covers eighty four percent of the total deposits balance in a institution. An effective way to prevent a bank run is by protecting majority of depositors, thus majority of depositors are been protected by the current scheme. Increasing amount to further 75000 or 100,000 will cover mores balances but will affect the market discipline country. With these examples, data from BSA on the retail accounts and with the IMF guide line I conclude a limit more than 35,000 to 40,000 will affect the longer term financial stability and a current scheme itself will be effective in stopping the bank run.

Responses from 49 societies, representing 99% of the sectors' assets.

4.3 RISK ADJUSTED PREMIUM

Risk adjusted premium is another technique that is recently used to maintain market discipline. Institutions pay their premium relative to the risk of failure. This provision is famous among the commercial insurance scheme, greater the risk, greater the insurance premium paid. So when the banks engage in riskier activity will have to pay more premiums. Federal Deposit Insurance Corporation in United States uses this form of funding. This technique will be very effective to alleviate moral hazard if the risks of the bank can be evaluated properly. This will stop the banks from engaging in riskier activities, market discipline can be obtained by using this technique, as the banks will need to pay higher premium than the conservative banks. Risk adjusted premium works better than the normal flat premium. Use of this system has strongly increased over the years.

United Kingdom has a uniform pricing system this will not contribute to reduce the riskier activities of the banks. Introduction of risk adjusted premium will contribute to the market discipline. This method will encourage stopping the risky activities of the bank. The high risk banks will be required to pay a higher premium and will require the conservative banks to pay very less premium. The risk adjusted premium will eliminate excessively risky activities of the banks (FSA, Financial stability report). System must be implemented in United Kingdom to curb the moral hazard. This system can play an active role and contribute to financial stability.