FSA power to seize cash if banks fail

Tuesday, January 22, 2008

The Financial Services Authority (FSA) is to be given new powers to intervene with failing banks. They will be able to seize depositors cash which should avoid a repeat of the problems with Northern Rock.

There are likely to be key triggers that would lead to such action, including if a bank makes a request for an emergency loan. This would allow the regulator to take a closer look and potentially step in at this stage.

The FSA would be able to seize depositors cash which could then be repaid, moved to another bank or returned to the original institution.

Banks will also have to divulge more information to the FSA about their liquidity.

The issues with Northern Rock and how the affair has been handled has been questionable. It has highlighted that the current systems in place need changing and it looks like prime responsibility in future will be taken by the regulator and not the Bank of England.

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