FSA given powers to prevent another Northern Rock

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LONDON – UK Chancellor of the Exchequer Alistair Darling has announced plans to introduce US-style legislation to stop another bank run. The UK’s finance minister has faced criticism over his reaction to last year’s Northern Rock crisis – which marked the first run on a UK bank in almost 150 years.

The new legislation – to be introduced in May – would give the Financial Services Authority (FSA) increased powers to protect customer assets in the event of a bank’s collapse and would increase the size of protected deposits.

Last year saw long lines of customers queuing outside Northern Rock branches to withdraw their money. Under current rules, only the first £2,000 of a customer’s deposits is fully guaranteed, followed by 90% of the next £33,000. New legislation might guarantee deposits up to as much as £100,000.

The UK tripartite system comprising the Treasury, Bank of England and the FSA has been criticised for failing to react promptly to the Northern Rock debacle. Northern Rock has so far received an estimated £26 billion emergency loan from the Bank of England, together with existing government guarantees for customer assets totalling around £57 billion.