Nationwide demands deposit compensation reforms

By Rowena Mason and Philip Aldrick
Last Updated: 7:13PM GMT 10 Nov 2008

Nationwide Building Society has called for riskier banks to bear a larger share of the funding burden for the Financial Services Compensation Scheme (FSCS). The call came as the building society announced that its half-year pre-tax profit dropped 18pc in "extreme market conditions".

Voicing support for a "significant" increase in the £50,000 level of deposit protection, chief executive Graham Beale said: "It doesn't seem fair that a conservative lender should take a disproportionate share of the cost for a bank that was risky." He recommended a "risk-based" levy system.

Banks and building societies are facing a £14bn bill for the nationalisation of Bradford & Bingley, when the lender's savings were transferred to Santander-owned Abbey under an arrangement with the FSCS. The Government loaned the FSCS £14bn, which will be recouped from the banks in levies over the next few years.

Chief executive Graham Beale said the board would be lobbying the Government to re-examine the current levies, since the lender was "unfairly disadvantaged" by paying towards compensation for failures, such as the Icelandic banking system. The collapse of Icesave will cost the banks a further £800m through the FSCS.

Nationwide continues to be seen as a safe haven, attracting £2.6bn of net deposits in the six months to September.Net mortgage lending grew by £1.3bn. Nationwide announced mergers with Derbyshire and Cheshire building societies in September and expects to save £90m from its ongoing integration with Portman in the next financial year.