Darling may raise deposit protection

The Government's guarantee to protect up to £50,000 of savers' deposits if a bank collapses could be increased as it attempts to bring calm to Britain's turbulent money markets.

The limit is being raised from £35,000 to £50,000 today but Alistair Darling announced yesterday that the Financial Services Authority (FSA) is considering extending it further. In an emergency statement to the Commons, the Chancellor warned of the "sheer scale" of the financial crisis and pledged that the Government would do "whatever is needed" to preserve stability.

With Gordon Brown by his side, Mr Darling took a swipe at the German government after it took unilateral action on Sunday by suggesting that all savings in its banks would be protected. The Chancellor said: "Wherever it is possible to do so, countries should work and act together to maintain stability."

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He said the Government had sought explanations over the action from Berlin and had been assured Germany was making a "political declaration" rather than a legally binding promise.

But a source at the Treasury made little effort to disguise its irritation over Berlin's intervention. He said: "What happened over the past few days hasn't been helpful and hasn't been conducive to having orderly markets and reassurance for customers."

Angela Merkel, the German Chancellor, was criticised at the first meeting of the UK's National Economic Council, or "war cabinet", chaired by Mr Brown, for hinting on Sunday that her government might guarantee all deposits. One source said: "There is dismay. Angela Merkel spoke first and then the Germans had to work out what their policy is."

Last night, Mr Brown warned the City that the Government might impose reforms to ensure that it acted morally in future. He told a dinner in London: "Wealth creation is not just a privilege but a responsibility. And that is why we back the work ethic; we support effort and enterprise and responsible risk taking. These are the morals markets need." He added: "Where there has been irresponsibility we must now have instead transparency, integrity, responsibility, good housekeeping and internationalco-operation as the vital foundation stones of our financial system and the international financial system."

The Prime Minister promised that the Government would "do everything to renew our financial institutions" around these principles.

Mr Darling told MPs that "all practical action" would be taken, but refused to be drawn on calls for ministers to be given a stake in ailing banks in return for injecting capital into them. The Chancellor said the increase in the depositor protection limit to £50,000 – or £100,000 for joint accounts – for savings in any one bank would cover 98 per cent of accounts.

But he added: "The FSA is consulting on whether to increase this limit further to ensure that arrangements here continue to be comparable with international best practice." One option is to guarantee £50,000 in each account held by a saver in a single institution. The £50,000 limit covers all deposits in one bank – regardless of how many accounts are held. He said the Government had already lent £100m to the banks through its new Speciality Liquidity Scheme – and confirmed that an another £40bn would be pumped in by the Bank of England today.

George Osborne, the shadow Chancellor, said the crisis had been created by an economy built on a "debt-fuelled bubble" but warned: "The bubble has now burst and debt is being called in." He called on ministers to consider "more dramatic" action to protect banks.

But following Tory suggestions that the state should take an equity stake in beleaguered banks, Mr Darling accused the Opposition of fuelling the turmoil in the markets. "It would be irresponsible to speculate on the specifics of future responses – indeed, providing a running commentary could add to uncertainty," he said.