Northern Rock has been forced to close many of its savings accounts to new customers after a flood of business left it in danger of breaching competition rules.
The nationalised bank said it had been besieged by savers attracted to the fact that its state ownership means deposits are guaranteed in full - a more generous pledge than the 35,000 ($93,000) compensation limits applying to accounts in privately owned banks.
The Government promised, when nationalising Northern Rock, that it would not allow its share of the retail savings market to exceed 1.5 per cent.
A spokesperson for the bank said yesterday: "Recent turbulence in financial markets has led to a sizeable inflow of retail deposits, particularly in recent days, and Northern Rock is taking further action to uphold its competitive commitments."
The move highlights the growing anxiety of savers with large sums of cash at British banks and building societies. The Irish Government was yesterday forced to defend its move to guarantee all such deposits at the six leading banks in Ireland, after British banks complained that the state backing gave the country an unfair competitive advantage.
The British Bankers Association wrote to the Irish Government yesterday to complain, but a spokesperson for the Irish finance minister insisted that the country's banks would not get an advantage because they will be charged for the pledge and might face restrictions on how they advertised the additional security of their accounts.
In the UK, Gordon Brown has come under pressure to match the Irish pledge but has so far failed to do so. The Government says that 96 per cent of depositors are covered in full by the 35,000 guarantee, which will rise to 98 per cent when a plan to raise the maximum compensation to 50,000 is implemented.