British Chancellor of the Exchequer Alistair Darling said last night that he was considering guaranteeing savings held in a bank or building society up to £100,000 (€143,102) in the wake of the Northern Rock crisis.
In an interview with the London Timesnewspaper, Mr Darling said: "This is a bullet that needs to be bitten". Bank of England Governor Mervyn King identified the current system - where there is a 100% guaranteed on the first £2,000 and 90 per cent on the next £31,000 - as one of the reasons for the run on the Northern Rock.
Giving evidence to the Commons Treasury Committee on Thursday, Mr King said that it was "logical" for savers with more than £33,000 to rush to withdraw their money once they saw the bank was in trouble.
According to the newspaper, Mr Darling is considering moving to an American-style system where savers' money is separated out in the event of a bank collapse and paid out within days. Although a figure has not yet been decided upon, Mr Darling told the paper that £100,000 was possible.
The scheme would be paid for by a levy on banks and other financial institutions. It will form part of a wider package of financial reforms to be announced when the Commons returns next month following the party conferences.
Mr Darling said that the international "credit crunch" caused by the collapsed of the US sub-prime mortgage lending market which triggered the problems at Northern Rock had been a "major upset".
"What's happened in America, and what's now affecting countries all over the world is a major shock to the system. Its effects have been felt here, in the Far East, and we have to deal with it," he said. He also expressed optimism about the state of the housing market in the UK.
"I take the view that the slowing of house prices and ensuring that they are based on reality is not a bad thing. It is in no one's interest for house prices to go on rising year after year when that is not justified," he said.
PA