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Banking reforms will cost charities millions, say charity leaders

7 September 2012

Plans to reform the banking system will cost charities millions of pounds by laying them open to devastating losses in the event of a bank collapsing, a coalition of major voluntary sector leaders warn today.

The Charity Finance Group (CFG), the National Council for Voluntary Organisations (NCVO), Charities Aid Foundation (CAF) and the Association of Chief Executives of Voluntary Organisations (ACEVO) said proposals in the Banking Reform White Paper would increase risks for charities by leaving them with very little protection if a bank collapses.

They warned the plans would cost charities millions of pounds by forcing them to keep their money in low interest accounts, and spend more on financial advice to try to minimise risks.

A joint submission to ministers calls on the Government to grant charities “preferred creditor” status in the event of a bank collapse - which would ensure charity deposits have priority alongside those covered by the Financial Services Compensation Scheme.  Such a move would ensure charity bank deposits have additional protection - without any extra cost to the taxpayer. 

Charities hold around £18 billion in cash deposits to pay for vital services and to meet their commitments. Losing money as a result of a banking collapse would leave charities devastated and severely affect the support they can offer to some of the most vulnerable people in society.

Caron Bradshaw, CEO, CFG, commented:  “The stated aim of the white paper is that in the event of bank failure, losses should be borne by those best able to understand risk and who can absorb loss best.  While the Government’s reforms are extremely welcome and a safer banking environment can only be a good thing for charities and society generally, the changes and their impact on charities sadly have the effect of undermining this aim.

“The standard of financial management in charities is excellent, however, managing banking risk is a very niche skill and the banking crisis taught us even the most diligent of trustees can’t anticipate all catastrophes. We are hoping that Government take our concerns onboard and adopt measures which take into account the unique position of charities with regard to activity and funding.”

Sir Stuart Etherington, CEO, NCVO commented:   “We are concerned that the proposals don’t take into account the nature of charity funding.  To effectively undertake projects and ensure financial sustainability charities hold high levels of cash relative to their size - Tearfund, for example, the large international development charity, operates in 35 countries and needs to hold significant deposits at all times in order to do so.  Charities have too much at stake to face these additional risks.”

Sir Stephen Bubb, CEO, ACEVO, commented:   “Over recent years we have seen the devastating impacts on beneficiaries and communities as charities have been forced to close due to the financial crisis.  It is therefore only right that Government builds in measures to protect charities in their proposals to try and prevent future disasters”.

John Low, Chief Executive of the Charities Aid Foundation, said: “The Treasury’s proposals leave charities at greater risk of losing everything if a bank fails. This would be devastating for all the people they support, who include some of the most vulnerable in our society.

“Unlike businesses and commercial investors, charities’ money is held in trust for the public good. It would be totally unacceptable to leave charities, donors and - most importantly - the beneficiaries they serve at risk of being deeply damaged if we face another banking crisis.”

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