BBA urges caution on depositor protection reform

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The British Bankers Association (BBA) has urged the UK government not to introduce hasty changes to the nations personal finance system in response to the Northern Rock crisis.

According to the BBA, if such action were taken too quickly, it could be seen as excessive by many within the industry.

In a response to a recent consultation on the issue launched by HM Treasury, chief executive of the BBA Angela Knight recommends a more measured approach.

"The UKs regulatory system failed in respect of one bank and the intervention by the authorities was undertaken in a particularly public manner," she explains.

Ms Knight adds: "There are many within the banking industry and externally that would question whether extensive legislative change is the right response."

Further concern is expressed by the BBA that the consultation focuses too heavily on ensuring depositors are not negatively impacted upon should a bank fail.

Rather than putting in place greater protection for deposits, the association suggests that more attention should be paid to preventing institutions from failing at all.

Along with this, the lessons to be learned from the Northern Rock incident "should not be underestimated".

These include the ways in which the financial institutions regular operating procedures put it at significant risk and the "regulatory latitude" given to the lender.

Should any of the proposals be approved, the BBA recommends a phased introduction process in order to reduce the likelihood of anything going wrong.

"The complexity and range of issues contained in the consultation raises the real risk of adverse unintended consequences if changes are rushed," the organisation asserts.

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