As Northern Rock’s situation continues to deteriorate, the British government has stepped in to up its guarantee for savers concerned about the safety of their deposits.
On Monday, British finance minister Alistair Darling said the government would protect 100 percent of a depositor’s savings with a retail bank up to 35,000 pounds, or $71,500.
Currently, the guarantee applies to 100 percent of the first 2,000 pounds, and 90 percent of the next 33,000 pounds, resulting in an aggregate guarantee of only 31,700 pounds.
“We need to significantly increase the amount of protection … and secondly and rather crucially, if a bank is in difficulty, to be able to separate the savers’ money from the rest of the bank’s assets, so that their money is protected and it can get paid out back to them as quickly as possible,” Darling said in a statement.
Britain’s Financial Services Authority (FSA) confirmed Darling’s announcements in a separate statement on Monday, saying the increase would be applied retrospectively from October 1, 2000.
Darling told the BBC that he seeks 100 percent protection up to 100,000 pounds, but that new legislation would be required for such a move.
In the United States, the FDIC insures deposits up to $100,000, though that hasn’t stopped many depositors from lining up to pull money out of struggling mortgage lender Countrywide.
Meanwhile, shares of Northern Rock slipped to new lows, closing at 132.10 pence, down 26.28 percent, and nearly 80 percent since it sought help from the Bank of England.
According to recent reports, Cerberus and JC Flowers have both met with Treasury officials to talk about purchasing the bank’s mortgage book, while Lloyds TSB Group Plc is considering a new bid, though any offer will likely be at a steep discount.