The fund that Britain taps into in order to protect bank deposits is worth only 4.4 million pounds ($8.9 million), a British newspaper reported on Tuesday.
The report by the Independent newspaper comes as the British government has signaled it may provide consumers with full protection on deposits of up to 100,000 pounds as the nation's lenders face a credit crisis that triggered the worst run on a British bank in recent memory.
The report pushed sterling down to $2.0140 on Tuesday, after the currency hit its strongest level in more than a week in the previous session.
The pound slipped around half a percent against the yen as the news highlighted the ongoing fallout from the global credit crunch, which cooled risk appetite on Tuesday.
Just 4.4 million pounds remain of a 9 million pound fund managed by the Financial Services Compensation Scheme, because of payouts to depositors with collapsed credit unions, the report said.
That compares with a $49 billion fund run by the U.S. Federal Deposit Insurance to protect deposits, the Independent said, adding that the U.S. entity also has the power to take control of the deposits of failing banks.
If required, the FSCS could call on up to 139 million pounds by dipping into funds reserved to pay for compensation claims from other parts of the financial services industry, the report said.
But a major bank failure would leave the FSCS with little choice but to impose a huge levy on the rest of the industry, which could weigh on profits, the Independent said.
Given that resources are limited to begin with, it added, consumers could also face sharp price rises to pay for government guarantees.
British Finance Minister Alistair Darling signaled late last week that the government was considering raising the limit on depositor money protected by law, after pledging to guarantee all existing deposits at Britain's fifth-largest mortgage bank Northern Rock.
The bank has been engulfed in crisis since requiring support from the Bank of England earlier this month, and media reports have said that three leading hedge funds are planning a break-up of the bank.