Regulation & ComplianceDigital era could fuel deposit runs, banks warn

Digital era could fuel deposit runs, banks warn

The arrival of digital banking apps and the Faster Payment System are making it easier for customers to move their money around. But this could make banks more vulnerable to a run on deposits, financial institutions and regulators have agreed.

The arrival of digital banking apps and the Faster Payment System are making it easier for customers to move their money around. But this could make banks more vulnerable to a run on deposits, financial institutions and regulators have agreed.

Banks have previously warned that digital systems allowing customers to move large sums at the touch of a button could leave them at risk.

Head of the British Bankers’ Association Anthony Browne said regulators were aware of the issue, and are considering introducing a brake mechanism to fund transfers, which would stop a run on a bank if a certain percentage of its profits were withdrawn.

The ‘account number portability’ proposal, which is being examined by the Payments System regulator, could also allow customers to move from one bank to another immediately, while keeping their account number.

While City minister Andrea Leadsom and the Financial Conduct Authority support the proposal, the BBA has dismissed the idea. UK banks launched a seven-day account switching services in 2013.

“Regulators need to be aware of the risk that the ability to withdraw money quickly and move it somewhere else could make a run on a bank more likely,” Browne said prior to the release of the BBA’s digital banking report.

A Financial Times source hinted that the recent increase in the level of deposits guaranteed by the government – which has now risen from £50,000 to £85,000 – should reassure depositors.

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