The Bank of England is to improve protection for account-holders in banks that go bust by increasing the maximum amount of compensation they can get to 90 per cent of a pounds 20,000 deposit.
The increase, up to pounds 18,000 from its former 75 per cent ceiling of pounds 15,000, comes into effect on Saturday.
The changes are being made in the wake of a new European Deposit Guarantee Scheme directive, bringing banks in line with similar rules for building societies.
Bank of England officials also said that compensation payments can now be triggered by an order from a liquidator rather than having to wait until the bank goes into full liquidation, as before.
In some cases, the Bank itself may order payments from the scheme.
However, payments will be made only for deposits in banks incorporated in the UK rather than branches of overseas banks trading in this country. Otherwise, compensation will be met by the country where the bank is based.
Had this rule applied at the time of the BCCI collapse, the UK deposit protection scheme, which paid out pounds 77m to account-holders of the failed bank, would not have been liable and compensation would have been met by Luxembourg banking authorities.