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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