Chancellor Alistair Darling pledged again today to do "whatever is needed" to maintain financial stability as he disclosed that depositor protection for savers may rise again from the planned £50,000 limit.
In a statement to MPs returning after the summer recess, Mr Darling insisted: "All practical options must remain open to us."
Flanked by the Prime Minister, he told a hushed House that the Bank of England would tomorrow inject a further £40 billion into the financial system to help ease the credit crunch.
And in an implicit criticism of Germany, which has appeared to act unilaterally to safeguard all private savings accounts, he stressed the need for countries to act together to tackle the crisis.
Mr Darling said the FSA had announced an increase from tomorrow to the compensation limit for retail deposits to £50,000, covering 98% of all accounts.
The FSA was consulting on whether to increase the limit further – to "ensure that arrangements here continue to be comparable with international best practice".
Germany's action on depositor compensation appeared to take the Government by surprise with the Prime Minister's spokesman saying earlier today that ministers had been seeking clarification about Germany's position.
Mr Darling told the Commons: "I've always been clear that each country needs to do whatever is needed to deal with its own particularly circumstances.
"However, I also believe that wherever it is possible to do so, countries should work and act together to maintain stability."
In the last hour all 27 European Union member states had reaffirmed the need to take whatever measures were necessary to maintain stability.
"But in the light of what's happened over the weekend it is especially important that EU member states work far more closely together.
"So, tomorrow I will meet European finance ministers in Luxembourg to further discuss how we bring stability to the system and to protect depositors."
He said the Bank of England will continue to do "whatever it takes" to make cash available for banks to lend.
The Banking Bill will be introduced to Parliament tomorrow – giving the Bank of England a statutory role to maintain financial stability.
Mr Darling acknowledged that financial disruption had "intensified" over recent weeks and spread to all parts of the world.
The Government had made available more than £100 billion of long-term lending and was willing to make further resources available as necessary.
"Our aim is to reduce uncertainty and improve confidence in financial markets by increasing the openness of financial institutions' exposures."
The "process of change" would take time to work through and would require action not just at national level but internationally too.
"It would be irresponsible to speculate on the specifics of future responses," he cautioned. "Providing a running commentary could add to uncertainty in already febrile market conditions.
"But all practical options must remain open to us."
He added: "These are exceptional times and I'm in no doubt as to the size of the task facing us, and governments across the world, in bringing order to the financial system.
"I've made it very clear that the Government is ready, with the resources and the commitment, to do whatever is necessary."
Shadow chancellor George Osborne reaffirmed the Tories' commitment to work with the Government to get banking reforms onto the statute books.
He said: "If the banking system fails it's not just the banks that go bust: businesses fail, families can't get mortgages, people lose their jobs, not just in the banks but across the wider economy.
"The Prime Minister said that we would never see a return to 15% interest rates. Well this week one of our High Street banks has written to many of its small business customers increasing their interest rates to 15.8%.
"All of us need to work together to stop Britain sliding from a banking crisis into a deep recession."
Mr Osborne accused the Irish, German, Danish and Greek authorities of each acting unilaterally to guarantee savings.
"It is not helpful for European leaders to call for international co-operation at summits and then hours later act unilaterally."
Their actions were "adding to market anxiety," he said.
The reliance of banks on overnight lending from the money markets was creating a "hair trigger" which left institutions exposed to events, Mr Osborne said as he backed the latest cash injection by the Bank of England.
But, he added: "Let's be clear about what is happening here: the Bank of England is becoming not just a lender of last resort but the lender of only resort."
Mr Osborne said the crisis was caused by an economy built on a "debt-fuelled bubble" but "the bubble has now burst and debt is being called in".
The Tories called for an end to the "mark to market" accounting rules and a process of recapitalisation, possibly including the use of public funds.
"Would it not be irresponsible to not even at least consider more dramatic measures to help our banks, including support from creditors and government injection of capital."
To jeers from Labour benches he added: "Of course there would have to be very strict conditions to protect taxpayers and ensure that they benefit first from any gains.
"We couldn't contemplate taxpayers' money being used to prop up the kind of salaries and bonuses we have seen in recent years."
The Chancellor's announcement came as London's FTSE 100 Index was on course for its biggest one-day fall in more than 20 years today on another day of turmoil for global stock markets.
The Footsie was down almost 9% at one stage – representing the biggest decline since the aftermath of Black Monday in October 1987.
There was a similar freefall on the other side of the Atlantic. In the first hour of trading, the Dow Jones industrial average fell 336.43, or 3.26%, to 9,988.95, dropping below 10,000 for the first time since October 29, 2004.
A host of the UK's biggest banks were rocked by turmoil across the European banking sector, with
Royal Bank of Scotland nursing a 22% fall.
The full article contains 1026 words and appears in The Scotsman newspaper.
