Plans for a US-style insolvency regime for UK banks that would hand administrators sweeping powers in a collapse were on Thursday proposed by Alistair Darling in his formal response to the Northern Rock crisis.

In a statement to MPs, the chancellor, who revealed he had a Northern Rock mortgage himself, set out steps the government could take to prevent a repeat of Britain’s first run on a bank in more than a century.

They included raising the £35,000 ceiling at which savers’ money is protected, faster pay-outs to depositors and maintaining “critical” banking services such as direct debits and the use of cash machines. But Mr Darling was attacked by the opposition on his handling of the crisis. Banks said they would resist moves to raise the savings guarantee to £100,000 – a level the chancellor floated in a newspaper interview.

Among the options in the consultation paper was an administration system for insolvent banks. Some countries, such as the US, have a separate re?gime for banks. The proposals would allow administrators to sort out problems more quickly by attaching the same strategic importance to banks as to essential services provided by utilities. An administrator could take over and operate client accounts, with depositors given higher priority with creditors.

“This new regime would mean depositors are insulated from a bank that has failed, greater compensation for them, and certainty their compensation can be paid out quickly,” Mr Darling said.

George Osborne, shadow chancellor, said the regulatory system put in place by Gordon Brown had “failed its first serious test” and Northern Rock’s woes had made the government’s boasts of financial stability “ring hollow”.

The consultation paper comes four weeks after the Newcastle-based bank, one of the UK’s largest lenders, was forced to seek emergency financial help from the Bank of England.

In spite of assurances that the bank remained solvent, savers queued to withdraw their money. Only when the Treasury guaranteed their deposits did the crisis abate. By then, customers had taken out about £2bn and its shares had plunged. Mr Darling said: “The availability of credit has increased in the last few weeks but we cannot be cer?tain when the instability will end.”



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