Draft banking reform bill does not include protection of charity deposits

By David Ainsworth, Third Sector Online, 15 October 2012

Jane Tully

Jane Tully

Jane Tully of the Charity Finance Group says that as a result many charities will deposit in banks with lower returns

The government has not included protections for charities in its draft banking reform bill, despite lobbying from sector umbrella bodies that argue a failure to do so will cost the sector millions of pounds.

The bill is intended to increase stability in the banking system and builds on recommendations from the Independent Commission on Banking Reform.

In a response to the consultation, representative bodies, including Acevo, the Charity Finance Group, the National Council for Voluntary Organisations and the Charities Aid Foundation, lobbied for charities to be given "preferred creditor" status to protect them from the reforms.

But this proposal has not been included in the bill.

CFG argues that charities will therefore be forced to keep their money in safer accounts paying lower levels of interest. The charity sector holds about £18bn in cash, meaning that even small changes in interest rates will lose the sector many millions of pounds.

However, the government has said that all charities will get protection similar to that individual bank customers get, with deposits of up to £85,000 guaranteed.

Sir Stephen Bubb, chief executive of Acevo, said: "The government’s failure to protect charity deposits is a huge disappointment that leaves charities at the mercy of the banks. It means that charities risk losing everything if their bank goes under, putting services for the vulnerable at risk."

Jane Tully, head of policy at the CFG, said: "The changes could result in many charities depositing in banks with lower returns and investing in advice or training to manage the increased risk, further adding to their cost base in this pressurised environment.

"Charities will therefore need to be aware of the changes and ensure that they have the skills and capacity to effectively manage this increased banking risk."

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