On the same day as the Bank of England has broadened the colatteral that it will accept in exchange for loans, the FSA has announced this important change, in what can be seen as an operation to restore confidence in the banking system.
Commenting on the FSCS increase Hector sants, FSA's Chief Executive Officer said: "There has been extensive debate about the compensation levels. In the interests of providing clarity over the minimum level for the long term we have now decided to implement the move to a £50,000 limit from Tuesday.
"This change ties in with the introduction of the Government's Banking Bill in Parliament which is due next week, and is also appropriate given the consolidation that has taken place in the banking sector.
"In addition, the Chancellor has made clear that the Authorities will do whatever is necessary to maintain financial stability and protect depositors."
The Government will shortly be introducing legislation to further enhance consumer confidence in the banking sector.
The FSA is also to consult on further reforms, including considering whether the compensation limit should be higher still; the speed with which the FSCS can pay compensation; and the rules surrounding whether deposits are covered on a legal entity, a 'brand' or an 'account' basis.
This will provide effective long-term compensation arrangements in which consumers can have confidence.
