Chancellor weighs up £100,000 savings guarantee

Chancellor Alistair Darling considers guaranteeing British savings up to £100,000 after Northern Rock crisis

Saturday, 22, Sep 2007 12:00

The government could pledge to guarantee savings worth up to £100,000 in plans being considered by chancellor Alistair Darling following the Northern Rock crisis.

Under current legislation, the government would pay out 100 per cent on £2,000 of savings, and 90 per cent of £31,000 in the event of a bank collapsing.

But Mr Darling is considering adopting an American-style system of larger guarantees, telling the Times that a figure of up to £100,000 was feasible.

This week the Bank of England governor Mervyn King acknowledged that scenes of panicked Northern Rock customers queuing for hours to withdraw their savings from the troubled lender had damaged the banking industry's reputation.

And he told MPs that it was "logical" for people with savings of more than £33,000 to withdraw them if they thought the bank was on the verge of collapse.

"This is a bullet that needs to be bitten," Mr Darling told the Times.

But despite pledging to increase the transparency of the sector, the chancellor admitted that lenders may in the future be permitted to secretly appeal for last resort help from the Bank of England.

"I would say we need to think first and then act. You need to ensure that whatever you do makes the system better," Mr Darling continued.

"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 in here, in the Far East, and we have to deal with it."