What is the Financial Services Compensation Scheme

I opened a 7-day notice account recently. All very straightforward. The 'small print' states 'The Bank is a participant of the Financial Services Compensation Scheme established under the Financial Services and Markets Act 2000. Payments under the Scheme are limited to a maximum of £31,700 i.e. 100% of the first £2,000 of an Account Holder's total deposits with the Bank and 90? of the next £33,000'.

What does this mean and in what circumstances does the Compensation Scheme come into effect? Do all banks have this?

See [broken link removed].

Yikes!

Clubman - is this an argument for not depositing or investing more than 20K with any one financial institution? Do 'ordinary' (high street type) banks 'go bust'?

Re: Yikes!

is this an argument for not depositing or investing more than 20K with any one financial institution?

Whatever about being an argument against depositing more than €20K or whatever with one institution it's certainly a risk to be aware of and something worth considering in terms of the chances of it being more than just an academic issue.

Do 'ordinary' (high street type) banks 'go bust'?

No reason why not but it would probably be generally accepted that IFSRA/Central Bank oversight/prudential supervision should mitigate the chances of this happening. Unless I'm mistaken it's been a while (a few decades) since any bank has been in or close to this situation. Was it AIB who were at risk at one stage while the Insurance Corporation of Ireland did go bust? Note also that the recent collapse of Morrogh's stockbrokers in Cork is pertinent to this issue.

banks and security

Thanks ClubMan. This reminds me that I read in one of John Raven's books that banks lend nine times their assets and deposits. Perhaps in these bubble-filled times it's prudent to stop thinking in terms of safety in any financial realm!