Following the crisis surrounding Northern Rock (one of the UK's largest mortgage lenders) last month, the UK Treasury has decided to make some changes to the UK banking system and to the level of depositors' security.
On September 14, it became public information that the Bank of England made funds available to Northern Rock to cover £3 billion in publicly funded loans, and as a result of this knowledge becoming public, Northern Rock customers started queuing up to withdraw their money.
Northern Rock was unable to obtain loans from other banks because many are still unstable after the recent downturn in the sub-prime mortgage industry in the US. The Bank of England tried to ensure Northern Rock's customers that the bank was still solvent, but people still panicked and decided it was best to withdraw their funds.
At the time this occurred, only the first £2,000 of UK bank customers' money was guaranteed 100 per cent, and the next £33,000 was only insured 90 per cent.
Since the crisis at Northern Rock, Alistair Darling, UK's treasury chief, has decided to meet the public's concerns about the way the UK banking industry is being managed by implementing a guarantee plan similar to that of the United States Federal Deposit Insurance Corporation (FDIC).
Implemented earlier this month, Darling's guarantee plan ensures that if there were to be a banking collapse, depositors' money will be 100 per cent insured up to £35,000. This amount matches the security provided to customers during the Northern Rock incident.