Banking reforms 'put charities in danger', say voluntary sector leaders

Changes would cost voluntary sector 'millions' in the event of collapse, says response to Banking Reform white paper

Banking reforms could cost the sector
Banking reforms could cost the sector

Planned reforms to the banking system will cost the charity sector millions of pounds, a coalition of major voluntary sector leaders has warned. They say the moves would leave charities with little protection in the event of a banking collapse.

In a joint response to a consultation on the white paper Banking Reform, which closed last week, the Charity Finance Group, the National Council for Voluntary Organisations, the Charities Aid Foundation and the chief executives body Acevo said that charities should be granted preferred creditor status. This would ensure that they would have additional protection in the event of a banking collapse.

The response said that without this status charities would be forced to keep their money in less risky accounts, which give less interest. Charities currently hold about £18bn in cash deposits.

The response said that charities hold relatively high levels of cash compared with businesses of similar size and are therefore much more vulnerable to a banking collapse. At the same time, a charity had less sophistication in managing risk than a comparably sized organisation.

It also said that money held by charities, unlike that held by businesses, was held in trust for the public good and that increasing charities’ risk was harmful to beneficiaries.

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