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* Full compensation on many policies from July 2015
* BoE proposes 24-hour shift in deposits from failed lender
LONDON, Oct 6 (Reuters) - The Bank of England is proposingtougher protection for customers of banks and insurers that failin a bid to avoid the panic seen when Northern Rock facedcollapse.
The BoE, whose Prudential Regulation Authority arm regulatesbanks and insurers, published consultation papers on strictersafeguards that go beyond European Union rules in some cases.
Regulators want to stop a repeat of the chaos seen whenNorthern Rock hit trouble in 2007 at the start of a globalfinancial crisis, triggering the first run on a British bank inover a century as customers queued to withdraw their money.
The debacle over Equitable Life, an insurer that nearly wentbust over a decade ago with compensation payouts taking years tomaterialise, has also focused the minds of regulators on whethercurrent protections to policyholders are sufficient.
Under the proposed changes, if a bank goes bust, its accounts would be transferred to another lender so thatcustomers can continue to withdraw their money and use theircards without interruption.
This moves closer to the U.S. model for speedy resolutionsof troubled banks, and goes a step further than current EuropeanUnion rules that give customers an automatic right to have alltheir money up to 85,000 pounds refunded within seven workingdays.
The shift of accounts within 24 hours to a solvent bank isseen as an alternative to customers having to wait forcompensation as they could continue banking normally with theirown money.
Such a facility is already in force in the United States andthe change is expected to come into effect sometime in 2016. TheBank estimates that the one-off cost to the industry ofproviding continuous access to accounts is 250 million to 390million pounds, and 35 million to 50 million pounds on anon-going basis.
The BoE also proposes additional protection for bank accountholders when their accounts are temporarily higher, such as whenmoney is being moved during a house purchase or compensation fora personal injury has been paid.
"These proposals will allow customers to have continuousaccess to the money in their bank account - or receive paymentfrom the Financial Services Compensation Scheme," BoE DeputyGovernor Andrew Bailey said in a statement.
The Bank also proposes to raise to 100 percent from 90percent from July 2015 compensation for holders of insurancepolicies for annuities, protection against accidental death orinjury, and incapacity and professional indemnity.
Unlike on the banking side, there is no harmonised minimumEU insurance compensation scheme.
The Bank also published a discussion paper on ensuring thatcritical parts of a bank, such as IT, continue to operate evenif the deposit-taker fails. (Reporting by Huw Jones, editing by Steve Slater)
