Alistair Darling confirmed yesterday plans to increase the guarantee on depositors’ savings to £50,000 if their bank fails, but said that the bill would be met initially by taxpayers, not by the industry.

The Times – Siobhan Kennedy and Christine Seib – 2 July 2008

The increase from the existing £35,000 is an attempt to give consumers more confidence in the banking system in the event of another Northern Rock-style collapse.

Yet rather than ask the banks to pre-fund the deposit – as in the United States – the Chancellor said that he was not proposing to introduce such a scheme immediately, although he kept the door open for the future.

Instead, if a bank fails, the Government will use taxpayers’ money to pay out the deposits within seven days. Then it will claw back the funds through a sale of the banks’ assets – a process than can take months or years – as well as a levy imposed on other banks – full article