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Britain Will Raise Deposit Compensation: Darling

Britain will raise depositors' protection on their savings to 35,000 pounds, finance minister Alistair Darling will say on Monday after the country suffered its first bank run in more than a century last month.

Under an industry-funded scheme, the government guarantees the first 2,000 pounds of savings and then 90% of the next 33,000 pounds, for a maximum of 31,700 pounds.

In a speech at the Reuters headquarters in London, Darling will say the increased limit is the first step in improving the financial compensation scheme following the Northern Rock crisis last month.

Thousands of panicked savers queued to get their money out of Britain's fifth-biggest mortgage lender after it had to seek emergency funding from the Bank of England. The run only stopped when Darling pledged to guarantee all Northern Rock deposits.

"Savers need to be sure that they can get their money out if they need to. That is why in the current market circumstances we are providing a guarantee for Northern Rock's depositors," Darling will say, according to Treasury officials.

"But for the future, we now need to put in place a better regime ... Today I can announce the Financial Services Authority has increased the limits of the Financial Services Compensation Scheme so that it covers from today in full the first 35,000 pounds of people's deposits in any institution at 100%."

While Prime Minister Gordon Brown's Labour Party is still significantly ahead in opinion polls, the government, the Financial Services Authority and the Bank of England have come under fire for allowing the Northern Rock debacle to happen.

Many are calling for a change to regulatory and compensation schemes and Darling will set out wider proposals for consultation in a statement to parliament next week with legislation expected next year.

"In a global financial market no country or company can insulate itself entirely from international risk," he will say. "So if a problem does happen, we need to be able to deal with it quickly to maintain stability and confidence."

Sharing the platform with former Federal Reserve chairman Alan Greenspan, who now acts as an adviser to Prime Minister Gordon Brown, Darling will also set out Britain's thinking on how international financial regulation needs to be improved.

Improved supervision and transparency rules are expected to come to the fore at this month's meeting of Group of Seven finance ministers in Washington following the credit crunch that has taken hold of global markets since August and of which Northern Rock was a victim.