ABSTRACT
This Chapter focuses on the protection provided to depositors when a bank fails. In the event of bank failure savings will be at risk, and for many individuals a high percentage of total wealth could be vulnerable if no form of deposit protection is provided. This is especially true for savers of modest means who are likely to keep all, or at least a substantial proportion, of their savings at a branch of a single financial institution.1 The need for some form of protection to be provided has been recognised in many countries and by 1995 formal deposit protection schemes were in existence in forty seven countries world-wide.2 However, different countries have adopted different approaches to the protection of depositors and the purpose of this Chapter is to examine in detail the protection provided to bank depositors in the U.K., taking into account the influence of membership of the EU, and to contrast this with the position in the U.S. It should be noted that the protection of depositors is not universally considered to be the main purpose of deposit protection schemes, as such schemes can also play a regulatory role by helping to avoid systemic risk. From the consumer perspective the protection of savings is considered necessary, but questions arise in relation to the amount of cover which should be provided and the form which such protection should take. For example, should protection be limited to 100 per cent of deposits up to a particular limit or should only partial protection be provided? These issues are considered below.
