The larger deposit-taking institutions, such as banks and building societies, are "special" organisations in modern life, similar in some ways to utility providers. Banks should be allowed to "fail" so as to preserve market discipline on financial institutions. However, it is important that such "failure" should be handled in an ordered manner, managed in such a way as to prevent further damage to the economy, the financial, system and the interests of small depositors.
The taxpayer should not bear the risks of banks failing. Nor do we believe that small depositors should bear such risk. Rather, the risk of failure should be borne by a bank's shareholders and creditors, but exclude small depositors. The Government must ensure that the framework for handling failing banks insulates taxpayers and that small depositors should also be protected from the risk of banks failing.