Darling in plan to boost protection of bank savings

Savings of up to £100,000 could be guaranteed in a US-style protection scheme in which deposits in a collapsed bank would be paid back within days, the Government has indicated.

The plan is part of an overhaul of the banking system being considered by the Chancellor, Alistair Darling, in the wake of the Northern Rock affair.

The scheme would be paid for by a levy on banks and other financial institutions, and would allow the Bank of England only to lend as a last resort. The proposals are designed to restore trust in the system.

Other changes being considered by the Government could include reforms to the Financial Services Authority (FSA) deposit protection scheme, increasing the limits from 100 per cent on the first £2,000 and 90 per cent on the next £31,000.

Mr Darling told The Times that the changes would take time. "I would say we need to think first and then act. You need to ensure that whatever you do makes the system better," he said. The Chancellor declined to be drawn on whether Mervyn King, the Governor, would be recommended for a second term next year.

He appeared to acknowledge a potential slowing of the housing market, which he said was "no bad thing". He said: "It is in no one's interests for house prices to go on rising year after year when that is not justified."