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The Financial Services Authority recently proposed that the £35,000 limit be extended to £50,000 under looming bank reform legislation, a move the Conservatives have agreed to back.

Some Irish banks halved in value during trading yesterday, while the wider Irish market fell by 13 per cent — the biggest one-day fall in its history.

There were also rumours that millionaire depositors were withdrawing funds from Dublin-based banks because the Government protection was inadequate.

The scheme, which will run until at least September 28, 2010, also guarantees covered bonds, senior debt and dated subordinated debt.

It applies to Allied Irish Bank, Bank of Ireland, Anglo Irish Bank, Irish Life and Permanent, Irish Nationwide Building Society and the Educational Building Society, the Government said.

“The guarantee is being provided at a charge to the institutions concerned and will be subject to specific terms and conditions so that the taxpayers’ interest can be protected,” the Irish Government said.

“This very important initiative by the Government is designed to safeguard the Irish financial system and to remedy a serious disturbance in the economy caused by the recent turmoil in the international financial markets,” the statement said.

Only 10 days ago, the Irish Government raised the state guarantee limit on deposits from €20,000 to €100,000.

Ireland, once dubbed the Celtic tiger for its booming economy, has been hit by the global credit crisis and a domestic property downturn. It became the first eurozone economy to slide into recession this year.

Its stock market has been particularly badly hit because it is heavily weighted towards financial stocks. Ireland’s financial sector has yet to suffer the kind of government bailouts or rescue takeovers experienced in Britain and the US, its major two trading partners.

But analysts said the plummeting value of Irish banks was raising fears about growing bad loans in their own books and could make them candidates for takeover or insolvency.

Money Central: the six safest places to store your savings

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