This is a really interesting question for me as it crops up quite a lot however it’s important to remember that borrowing from a bank is not the same as depositing money into it.
Firstly on the reasons you should use small regional lenders, they are currently leading the market in terms of mortgage and savings rates and you may well find their customer service slightly less like dealing with a brick wall! There really are some cracking products being delivered by small regional lenders at the moment and there is really very little reason to shy away from them.
If you were a mortgage borrower with an institution that failed then there would be very little likely-hood of the administrators coming round with repossession orders even if the law permitted them to do so (which I am pretty sure it doesn’t but I am not a solicitor), because selling an entire loan book would be ludicrously complex and probably produce a much lower return than simply selling the book of loans to another institution, something which is in fact very common trading by Banks anyway.
Even in the event that there was no one forthcoming to purchase the loan book, the administrators would simply let the book run and pass administration to an outsourcing firm – again quite common.
The government currently in power has made it clear that it will not allow any financial institution in the UK to fail regardless of its size. The FSCS or Financial Services Compensation Scheme currently does not discriminate between the size of institutions either so as long the provider is a part of this scheme and falls under UK regulation this is not affected.
Tags: building societies, Financial Services Compensation Scheme, FSCS, Loan Book, Mortgage Administration, regional lenders, small lenders