The FSCS says it has worked closely with the tripartite authorities to protect savings in the bank. B&B’s deposits have been transferred to Abbey today, with B&B’s 2.5 million customers automatically becoming customers of Abbey.
Loretta Minghella, chief executive of the FSCS, says: “This initiative means that some 2.5 million savers can rest assured that their money is safe and they will not lose it because of the problems at B&B. They can access their accounts in the normal way and it is business as usual for them.
“The money we are contributing reflects the Financial Service Authority’s estimates of what we would have had to pay out if we had to pay compensation in the usual way. Our contribution means that people have immediate access to their accounts without having to send claims from FSCS and FSCS having to assess each claim individually.”
The FSCS has borrowed the £14bn to fund the transfer from the Bank of England, which will shortly be replaced by a loan from the Treasury. Repayments of the loan will be initially on an interest-only basis at a rate of one year LIBOR plus 30 basis points. The first payment will be due at the end of September next year.
It is expected that the amount owed by FSCS will be reduced over time by recovery of funds from the sale or run-off of the assets of the remaining B&B business.
Chris Cummings, director general of the Association of Mortgage Intermediaries, says: “The nationalisation of Bradford & Bingley has clear immediate benefits to consumers, reassuring them that their savings will not be lost.
“However, the process and involvement of the FSCS is significant, moving the Scheme into new territory.”
Cummings says the enormity of the loan from the BoE and subsequently HM Treasury to the FSCS raises some serious questions for the industry – and has potential ramifications for the wider financial services sector, not just banks.
He says: “At current LIBOR rates we estimate that interest due on the loan stands at around £1.8bn per annum. FSCS funding for the broad depositor protection class is around £2bn, before the wider industry – from insurers to IFAs and mortgage brokers – are required to contribute.
“We need to remember that the ultimate cost will be borne by the market, and so the implicit impact on consumers must be carefully monitored over coming months.”