British bank savings of up to 50,000 pounds will be guaranteed by the government from next week and the sum could be further increased as regulators battle to restore confidence in the banking sector.
Britain's Financial Services Authority said on Friday it had raised the compensation limit for savings to 50,000 pounds per customer claim from 35,000 pounds, after signs of bank customers withdrawing cash to put into perceived safe havens.
Separately the Bank of England (BoE) said it would accept a wider range of collateral, including some triple-A rated corporate and consumer loans, from banks under strain from a lack of cash in funding markets.
Several countries have attempted to restore confidence among savers this week amid a credit crisis which has raised fears that more bank failures could result in savers losing money, though Britain's move fell short of Ireland's complete guarantee for all savers.
One industry source in Dublin told Reuters on Thursday he expected strong inflows into Irish banks because of the blanket guarantee, with British depositors unnerved by the collapse of some of the biggest names in global banking.
Britain's FSA said the new compensation ceiling would take effect from Oct. 7 and customers with joint accounts will be eligible to claim up to 100,000 pounds.
"The Chancellor has made clear that the authorities will do whatever is necessary to maintain financial stability and protect depositors," FSA Chief Executive Hector Sants said in a statement.
The FSA said it will consult on further reforms, "including considering whether the compensation limit should be higher still." Other reforms could include shortening the time it takes for compensation to be paid and clarifying the legal status of claims.
The BoE said it would offer 40 billion pounds of funds at its next auction on Oct. 7 and would continue its weekly extended auctions until at least Nov. 18 to help ease the strains for banks trying to obtain longer term funds.
"In these extraordinary market conditions, the Bank of England will take all actions necessary to ensure that the banking system has access to sufficient liquidity," BoE Governor Mervyn King said.
Shares in British banks surged shortly after the announcements, although the rally was mainly due to news that U.S. banks Wachovia and Wells Fargo are to merge, dealers said.
HBOS and its takeover partner Lloyds each jumped over 12 percent and Royal Bank of Scotland and Barclays both jumped over 8 percent.
