Lenders to fund Icelandic shortfall

Updated: 

£20s

Britain's banks are to fork out more than £1 billion to cover the cost of compensation payments made to UK savers in failed Icelandic banks at the height of the financial crisis.

The British Bankers' Association (BBA) said lenders will make the first of three of multi-million pound payments today to the Financial Services Compensation Scheme (FSCS).


The Government stepped in to guarantee the savings of h undreds of thousands of Britons with deposits in Icelandic banks and UK lenders must now help repay the costs.

Compensation was funded by the FSCS - which protects customer deposits in the event of bank failure - with loans from the Treasury, although these government debts need to be repaid by April 2016.
The FSCS has been unable to recover the full amount that is owed from the estates of the three Icelandic banks - Icesave, Heritable Bank and Kaupthing Singer & Friedlander - and is currently out of pocket by £1.4 billion.

UK banks, building societies and credit unions will now collectively pay £1.1 billion over the next three years to fund the bulk of the shortfall, with further payments also expected from the Icelandic banks.

Anthony Browne, chief executive of the BBA, said: "The UK's banks are paying £1 billion to compensate for UK savers who could have lost everything when the Icelandic banking crisis hit.

"This compensation ensured that no savers who had money in Icelandic banks lost out.

"These payments show that the system works, and we hope it gives confidence to consumers that if there is ever another bank failure that their savings will be protected."

Icesave went bust in the autumn of 2008, leaving the Government to help bail out 230,000 savers to the full extent of their savings - around £3.5 billion.

The Treasury transfered the majority of Heritable and Kaupthing Singer & Friedlander's deposits to ING Direct, but savings that were not part of the deal were paid out through the FSCS and government.

Since the financial crisis, the FSCS has been extended so that all customers' savings, up to the value of £85,000, would be protected if another bank goes into insolvency.

© 2013 Press Association