THE UK government may guarantee up to 100,000 pounds (US$202,000) of individual bank deposits as it seeks to avoid a repeat of the run on Northern Rock Plc, Chancellor of the Exchequer Alistair Darling said, according to Bloomberg News.
Such a guarantee would effectively triple current UK savings protection. The program may be modeled on the US bank deposit insurance program, Darling said. A UK Treasury spokesman confirmed comments Darling made to the London-based The Times newspaper.
Customers withdrew an estimated two billion pounds in savings from Northern Rock in the three days after the Bank of England said it would provide the mortgage lender with emergency funding. The panic was halted when the government said it would guarantee all deposits at the Newcastle-based bank, prompting widespread calls for an overhaul of how Britain protects depositors.
"There are clear issues the regulators need to look at," Angela Knight, chief executive of the British Bankers Association, said in an interview with Sky News on Saturday. "I want to see confidence back," she said.
A new program would be funded by a levy on banks and other financial institutions, Darling said. The government hasn\'t decided how much money it would insure per individual, though Darling said 100,000 pounds was possible.
The ability of banks to hold investments off their balance sheets may be restricted, Darling said. Two German lenders had to be bailed out in July and August after being unable to refinance investments held in units off their balance sheets.
Northern Rock\'s shares fell as much as 73 percent after the Bank of England said on September 14 that it would provide Northern Rock with unspecified financing. The lender has borrowed about three billion pounds from the central bank, the Financial Times reported on Saturday.
Northern Rock last Monday issued five billion pounds worth of mortgage-backed bonds that could be used to draw on loans from the central bank.
Darling declined to say whether he would recommend Bank of England Governor Mervyn King for a second term next year.
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