Alistair Darling has said the government will provide assistance to any British bank that runs into trouble.

Following news that the chancellor was acting to protect funds held at the crisis-hit Northern Bank, it emerged that a wider policy review is underway.

"We will continue to do everything we can to ensure that the market returns to normal and I'm determined we maintain a stable banking system," Darling said.

"In the event that another bank were to need assistance from the Bank of England, and there is no sign of that at the moment, then exactly the same facilities that Northern Rock has been offered would be offered to that other bank."

It was also announced that the Bank of England had moved to inject £4.4bn into financial markets in a bid to ease the ongoing problems.

Meanwhile, Northern Rock took out newspaper adverts telling customers that all existing deposits are "totally secure during the current instability in the financial markets".

Banks were already covered by the financial services compensation scheme, meaning customers could receive a maximum payment of £31,700 if a bank went bust.

But under the measures unveiled by Darling, Northern Rock savers would receive full compensation backed by the state.

And there have been suggestions that the government will adopt a US-style system of protection for all bank customers, where deposits are ring-fenced in case of a collapse.

The tri-partite committee made up of the Bank of England, the Financial Services Authority and the Treasury met again on Tuesday, and the chancellor gave an update to the cabinet.

Gordon Brown and Darling both reassured colleagues "that the volatility we have been seeing in financial markets which is the origin of recent events relating to Northern Rock is an international phenomenon", the prime minister's spokesman said.

"The second question for the UK is how well placed we are to withstand shocks of these kind, and because of the underlying strength of our economy and because of our regulatory and fiscal framework we are well placed to withstand these shocks as we have withstood similar shocks over the past decade," he added.

Phil Hammond, shadow chief secretary to the Treasury, said the chancellor had played his "last card".

He told GMTV: "The stability of the economy is the most important thing. The Conservatives have long warned of the of the dangers of building the economy on a mountain of debt.

"We need to restore confidence in the markets then take a long term look at the way the regulatory system is structured.

"The chancellor has played his last card with the guarantee he gave yesterday. People have now been given an absolute government guarantee - if that doesn't stabilise the situation, nothing will."

Liberal Democrat Treasury spokesman Vince Cable said ministers still had questions to answer.

"Is the Bank of England in effect proposing to nationalise Northern Rock to underwrite it?" he asked.

"And what will be done about those irresponsible managers who led Northern Rock into its current problems?"


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