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Knock-on effects... After the run on Northern Rock the Brown's government was forced to up the deposit guarantee from 100% of the first £2k and 90% up to £35k (I think it was) to 100% of £50k (to match the US FDIC's $100k deposit guarantee). The outcry over moral hazard and how he was putting the taxpayers at risk was quite loud. But now...

FT.com: Pressure mounts in UK to guarantee savings (September 30 2008)

Gordon Brown, the UK prime minister, was facing growing pressure to extend the guarantees on British savers' bank deposits after Ireland promised to underwrite the debts and savings accounts of its six largest lenders in a desperate bid to restore investor confidence in the ailing sector.

...

It enraged British and European officials and may fall foul of the European Commission's rules on state aid by offering competitive advantages to some Irish banks. The guarantees make the six lenders more attractive to savers and investors. The European Commission said it was only contacted overnight about the scheme but was looking to see whether state aid was involved.

On Tuesday, Mr Brown made it clear he was ready to increase the level at which savers' deposits were guaranteed from £35,000 to £50,000 but indicated he did not want to act until the markets had calmed down. However, the change could come in the next few weeks. But the government is reluctant to offer Irish-style guarantees to British banks and Mervyn King, Bank of England governor, would resist such a move, arguing that any guarantees would represent an unacceptable level of moral hazard.



A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Wed Oct 1st, 2008 at 06:09:42 AM EST
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