U.K. lenders will make the first of three multimillion-pound payments today to cover the costs of compensating customers for savings held in failed Icelandic banks, according to the British Bankers’ Association.
The payments, comprising three tranches of 363 million pounds ($563 million) each during the next three years, will be made to the Financial Services Compensation Scheme, the BBA said today in a statement on its website.
The government guaranteed the savings of hundreds of thousands of British customers at Icelandic banks in 2008, with U.K. lenders now being asked to help repay the costs. Compensation was funded by the FSCS with loans from the Treasury, and these debts need to be repaid by April 2016.
“This compensation ensured that no savers who had money in Icelandic banks lost out,” BBA Chief Executive Anthony Browne said in the statement. “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.”
The compensation being paid by the lenders will fund the shortfall created as a result of the FSCS being unable to recover the full amount that’s owed by the estates of the Icelandic banks Icesave, Heritable Bank Plc and Kaupthing Singer & Friedlander, BBA said in the statement.
The FSCS predicts the ultimate shortfall will equal about 500 million pounds. The body is expecting the Icelandic banks to make further payments after April 2016, BBA said.
The FSCS is funded by banks and guarantees the deposits of account holders in the U.K. If a bank fails, the fund repays depositors and then seeks to recoup the money from British banks and building societies.
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