UK studying German savings plans

The UK Treasury is trying to establish the exact details of what appears to be a German plan to offer a 100% guarantee of its private bank deposits.

The UK is to increase its cap on the amount of savings it will protect from £35,000 to £50,000.

But a German decision to back all its savings is likely to increase pressure on the UK to do the same.

BBC business editor Robert Peston said there was confusion at the Treasury over the specific details of the plan.

He said should German Chancellor Angela Merkel be offering to underwrite the retail liabilities of German banks, it would reverberate all over Europe.

Leaky borders

He added in such a situation, the UK would be expected to make a similar guarantee.

"If it turns out that [Germany] are guaranteeing all retail deposits, then I think it is inevitable that we will have to follow suit, because money leaks across borders like a sieve in these globalised markets.

"There is a risk money would flow from the UK to Germany if we didn't offer the same kind of protection."

Ms Merkel's comments about German savings came after it emerged that the country's second biggest commercial property lender, Hypo Real Estate, was struggling to stay in business.

A rescue deal was later sealed.

"We tell all savings account holders that your deposits are safe. The federal government assures it," she said.

Although it appears Germany is offering an unlimited guarantee of savings, further clarification is still being sought in the UK.

The issue is sure to feature at Monday's first meeting of Gordon Brown's new National Economic Council, set up to look at measures to help people deal with the current crisis.

UK Chancellor Alistair Darling has repeatedly pledged that he will do "whatever is necessary" to maintain stability in the British financial system.

Last week, the Financial Services Authority said it would be raising the limit on the amount of deposits that are guaranteed should a UK bank go bust from £35,000 to £50,000, per banking group, from this Tuesday.

Paris meeting

Greece and the Irish Republic have already announced they will guarantee all savings.

Earlier on Sunday, Lib Dem Treasury spokesman Vince Cable told the BBC that the UK could resist following their lead but a German announcement would be more difficult to ignore.

"As long as it was the Irish and small countries, in a way this could be fended off, but Germany... is a very big player and I fear that the British government may have to follow suit."

He added: "People are anxious. There is a danger that if one country, a major country like Germany, offers blanket protection and others don't, you then get an out-flow, so the British government will almost certainly have to follow."

Analysts believe Ms Merkel was forced into moving to reassure savers as Germany's second-largest mortgage lender Hypo Real Estate was found to be teetering on the brink of bankruptcy.

Her move came a day after leaders of the major European economies met in Paris for talks on measures to halt the global credit crunch.

Britain, Germany, Italy and France agreed to work together to support financial institutions and bring in more regulation.

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