This move means that the FSA would be able to seize an affected bank's funds in order to safeguard its customers' deposits, protecting against such a disaster as was seen in the months following Northern Rock's September announcement.
The sheer number of savers withdrawing vast amounts of cash - in some cases up to a quarter of a million pounds - prompted the government's move to guarantee all of the bank's existing deposits. However the continued withdrawal of funds has pushed the bank to borrow as much as £57 billion from the Bank of England to satisfy this demand and ultimately keep its head above water.
Speaking to the Financial Times, Alistair Darling said that the FSA would be granted these additional powers following a primary legislation in May. He added that the treatment of banks, and in particular the stifling insolvency laws which make it difficult to take action once a bank has got itself into trouble, had pushed this course of action to the front of the agenda.
This will bring the UK in line with the American and Canadian systems which already have this 'trigger point' system in place.
Darling added that the planned changes to the protection system would entail making sure that there was no doubt how much money is guaranteed, whilst making sure that people could access their money and remove it 'fairly quickly' should they find themselves in such a situation.
British Bankers Association (BBA) chief executive Angela Knight welcomed the move although stressed that changes like this should follow widespread consultation and not simply become a knee-jerk reaction to a larger problem.
