The Bank of England is currently undergoing a major overhaul of its deposit guarantee scheme. This comes in light of the recent collapse of Silicon Valley Bank and its UK branch, prompting regulators to reassess the guarantee's existing £85,000 limit which covers only about two-thirds of deposits.

HSBC Holdings Plc stepped in and purchased the UK business from Silicon Valley Bank for one pound sterling in order to protect the lender's customers. This may have averted a crisis, but the Bank of England's deposit guarantee scheme has come under increased scrutiny as it stands in comparison to the United States Federal Deposit Insurance Corporation (FDIC), which guarantees deposits up to $250,000.

In response to this, Bank of England governor Andrew Bailey has indicated at the potential of raising the deposit guarantee limit. In a statement made on Wednesday, he flagged that it is a matter of need-to-be-looked-at importance, stating that regulators must keep protection of depositors with smaller banks under review. This sentiment was further echoed in a recent Financial Times interview in which Bailey expressed his view that a potential increase in the limit should be financeable.

As part of the review, the Bank of England are thoroughly assessing the system, taking into consideration the safety of small depositors and the impact on the system's efficiency. The current crisis caused by the pandemic has demonstrated the importance of this insurance and the potentially disastrous repercussion of not having an effective system. With the frequency and severity of economic crises only likely to increase, it is essential that the Bank of England utilises all their resources to improve the effectiveness of their deposit guarantee system. Ultimately, providing financial protection and peace of mind for small depositors.



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