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Savers will lose out to failing banks

Building society savers and borrowers face poorer interest rates because of an "unfair" compensation scheme that bails out failed banks.

More than 110 MPs, including Dover's Gwyn Prosser, are calling on the Government to change the Financial Services Compensation Scheme (FSCS) levy so that it does not have such a "disproportionate" impact on building societies.

They argue in an Early Day Motion that the current allocation of the FSCS levy "works to the detriment of building societies’ members, their savers and borrowers."

Building societies will have to stump up around £200 million a year between them over the next three years to prop up Bradford & Bingley, and Icelandic banks. equivalent to about 15 per cent of the sector’s pre-tax profits.

Chatham-based Kent Reliance Building Society, one of 700 deposit takers obliged to chip into the scheme, faces a £4.5 million three-year bill.

Chairman Malcolm Mackenzie said it was never intended to rescue a big bank and the decision to call on the scheme to bail out B&B was made "without any regard to the impact on the building society industry."

"The burden of the call has caused a number of building societies to give up after perhaps more than 150 years of trading and it is unfair and unforgiveable," he said.

No investor had lost money with a building society in the last 100 years, no building society had asked for public money, and not one penny of taxpayers’ money had been used to prop up building societies.

KRBS made a pre-tax profit of £12.6m last year and the levy would have to come out of profits, Mr Mackenzie warned. "That means our rates will not be as good as they would be for the next few years."

Rob Procter, deputy chief executive, added: "We are bailing out banks that took bigger risks. So you have got prudent building societies owned by their members who are having to pay massive sums of money to bail out imprudent banks for their errors." Another bank collapse would make the situation even worse. Building societies want to see the scheme replaced by one designed only to rescue failed building societies.

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