Britain promised on Monday to protect ordinary savers in the face of global financial turmoil but shares in the country's banks fell sharply amid fears the government would seek partial ownership in return for support.
Germany pledged on Sunday to guarantee private deposit accounts, following earlier moves by Ireland and Greece, and other European governments, including Austria, followed suit.
Britain's Junior Treasury Minister Yvette Cooper said London was awaiting details on Germany's plan before taking action.
"We can't leave ordinary people and ordinary savers unprotected under these sorts of circumstances," she told BBC radio. "We are still expecting clarification from Germany."
Investors worried measures could include Britain injecting capital into UK banks in return for equity stakes, which would weaken their holdings.
"The obvious implication in the UK of a bank recapitalisation programme is that existing shareholders would be severely diluted," said Sandy Chen, banks analyst at Panmure Gordon.
Shares in all the UK's big banks dropped on Monday. The biggest loser was HBOS, which slid as much as 21 percent at one point before recovering some ground to trade down 15.4 percent at 0845 GMT.
"The intimation of government intervention could lead people to think it might affect the terms of the (Lloyds-HBOS) transaction," said Simon Willis, banking analyst at NCB.
HBOS agreed to a takeover by UK rival Lloyds TSB Group last month, a deal facilitated by the UK government, which waived competition rules to get the deal through.
The emergency action followed a steep fall in HBOS's share price which stirred fears about the bank's survival.
EQUITY STAKES
One option for the government to help ease a lending crisis and restore depositor confidence would be to provide capital to banks in return for equity stakes.
It could also nationalise more underperforming bank assets.
The government has already taken control of the UK's Northern Rock and last week nationalised the mortgage book of bank group Bradford & Bingley.
Britain's Finance Minister Alistair Darling will update parliament on the financial situation later on Monday after saying on Sunday that he was "looking at some pretty big steps".
However, Treasury officials said there were no plans for any immediate reaction to Germany's pledge.
Cooper said the government was prepared "to take radical action where it is needed".
"Both the Chancellor (finance minister), and the Prime Minister, have said we will of course do whatever it takes to get Britain through this and to make sure that our banking system remains safe."
The first meeting of Britain's new National Economic Council — a group of 17 ministers who will convene to coordinate economic policies across government and help people cope with the fallout from the financial crisis — takes place on Monday.
The council, chaired by Brown with Darling as his deputy, will meet at Brown's Downing Street office and take advice from experts on issues ranging from financial markets, global commodity prices, sustainable energy and barriers to business.
