£1m deposit guarantee

The Bank of England is to boost protection of bank deposits to £1m, for people who have a short-term jump in their account balance because they have sold a house or received compensation or an inheritance.

The proposal, which would come into force by July next year, would mean that the normal guarantee covering £85,000 of a bank account balance would be raised temporarily for a period of 6 months.

The Bank of England's Prudential Regulation Authority is bringing in the new rule to comply with a a European directive.

The PRA is also planning to create a "seamless" process of transferring accounts from a failed bank to a new account provider, so that customers will be able to use them as normal within 24 hours.

Mortgage borrowers vulnerable to higher rates

Bank of England Financial Stability Report's "significant" worries about UK borrowers:

"A significant cohort of UK borrowers could experience financial difficulties if interest rates were to rise during a period of subdued income growth.

"...households accounting for 9% of mortgage debt would need to take some kind of action — such as cut essential spending, earn more income (for example, by working longer hours), or change mortgage — in order to afford their debt payments if interest rates were to rise by just 1 percentage point...

"This would rise to 20% of mortgage debt if interest rates were to rise by 2 percentage points. Provided borrowers are able to take actions in order to afford their debt payments, then this may not lead to significantly higher losses for banks.

"The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), with other Bank staff, should provide an assessment to the FPC (Financial Policy Committee) of the vulnerability of borrowers and financial institutions to sharp upward movements in long-term interest rates and credit spreads in the current low interest rate environment. They should each report back to the FPC in September 2013."