Following a default and payment of compensation, the FSCS takes over the claims it has paid on equal terms with other similarly ranked creditors of the defaulting firm.
For example, if a bank holds £20 billion of deposits of which £10 billion is in deposits up to the £50,000 compensation limit from FSCS eligible claimants, the FSCS would pay out £10 billion as quickly as possible to eligible depositors using levies and borrowing. The FSCS would then attempt to retrieve all of its payments and costs from its share of the recoveries form the assets of the bank in default, which could take a number of years. If at the end of the wind down only £18 billion had been realised to cover creditors' claims then the levy would be repaid to the banking sector less £1 billion, its share of the £2 billion deficit. Other creditors would be £1 billion out of pocket.
If the Government's guarantee arrangements for Northern Rock had been called, any shortfall of assets to repay retail deposits above the FSCS compensation limit and wholesale deposits included in the arrangements would have been met by the Treasury.