The UK has launched a radical shake-up of the protection offered to savers after the government was forced Monday night to guarantee the deposits of customers of Northern Rock, the troubled mortgage lender, in efforts to stem the growing crisis in the UK banking sector. Alistair Darling, chancellor, said the government would guarantee all Northern Rock’s deposits. The Treasury said similar assurances would be apply to customers of any other lender encountering difficulty in the current turmoil. The FT has also learnt that the Treasury, the Bank of England and the FSA have begun reviewing the system for protecting savers, which only guarantees deposits up to £35,000, and are considering a US-style alternative to ring-fence deposits in event of a bank’s failure. Meanwhile, Pedro Solbes, Spanish finance minister, and Spain’s central bank denied reports Monday that several Spanish banks had sought emergency financing from the ECB after Spanish bank shares plunged.
