Credit Crunch: Another Manic Monday

Last Updated Oct 6, 2008 8:58 AM EDT

Europe's banks are falling over themselves to guarantee savings, even though it looks like Germany's promise to cover deposits was not a formal undertaking but more like UK Chancellor Alistair Darling's similar commitment.

In Ireland, 100 per cent coverage is available for savings at its six institutions -- a move initially branded anti-competitive but now seen as a 'no-brainer'. Sweden has since followed, doubling its guarantee on deposits (to a below-UK level of 500,000 Kronor.)

The UK's under pressure to extend similar coverage to its savers -- under the Financial Services Compensation Scheme, the limit has been raised from £35,000 to £50,000 (as of tomorrow). But if European banks start offering 100 per cent coverage, UK savers are likely to start shifting their deposits to banks on the Continent (or closer -- three of the Irish banks have operations in the UK).

There's also growing unease as Icelandic bank trading's been halted ahead of a government announcement. This follows the nationalisation last week of lender Glitnir, and means that Iceland's banks -- Kaupthing, Landsbanki, Glitnir, Straumur-Burdaras, Exista, and Spron -- have suspended trading under orders from the country's Financial Services Authority.

There's more to come, but the impact on the UK's high street would be hard to avoid. Iceland's Baugur owns several of the UK's biggest chains, including House of Fraser. It has fought to maintain confidence, but credit insurer Euler Hermes has withdrawn cover to several Baugur-owned brands, including women's fashion chains Karen Millen, Oasis and Coast.

More directly, thousands of UK savers who took advantage of favourable rates at Icelandic banks will be affected.

How long will it be before the UK government caves to pressure for full coverage of UK savings? It's every country for itself, then, as Europe's veneer of co-operation slips.