The British banks, building societies and credit unions have paid the first of three installments of £363m to compensate UK savers of Icelandic banks who lost money during the banking crisis in 2008.
The British Bankers’ Association said the UK financial institutions will pay a total of £1.08bn over the next three years to the Financial Services Compensation Scheme (FSCS).
The compensation paid by the banks will finance the shortfall created due to the inability of the three Icelandic banks, Icesave, Heritable Bank, and Kaupthing Singer & Friedlander, to pay to the FSCS.
During the peak of the banking crisis in 2008, the UK Government decided to bail out 230,000 UK savers by paying them their deposits totaling to nearly £3.5bn.
The amount was paid by the Treasury as the FSCS did not have enough funds to finance the bail out.
FSCS was to recover the compensation from the Icelandic banks and repay the UK Government. Now, however, the payments made by the banks will be used for the purpose. The Icelandic banks are expected to pay £500m after April 2016.
Anthony Browne, CEO of BBA, said: “The UK’s banks are paying £1bn to compensate for UK savers who could have lost everything when the Icelandic banking crisis hit. This compensation ensured that no savers who had money in Icelandic banks lost out.
“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.”