Savers on both sides of the Irish Sea started to empty accounts of UK banks and put the proceeds into Irish-owned banks in the wake of a controversial plan by the Republic of Ireland yesterday to guarantee all deposits.

Dublin was accused of making matters worse for non-Irish banks, with corporate treasurers and large savers pulling money out and putting it into the safer haven of Irish banks.

“If this is legal, then I’m a banana,” one disappointed senior British banker said, arguing that the Irish guarantee amounted to unfair state aid.

Lord Lipsey, the chairman of the Financial Services Consumer Panel in the UK, said it was “a national disgrace” that British depositors might be worse compensated than their Irish counterparts in the event of a bank failure. The dispute erupted as British bank chief executives were preparing to argue for policy changes to tackle the financial crisis. A conference call with Alistair Darling, the Chancellor, was scheduled for last night.

Some banks would like there to be a more explicit deposit guarantee announcement from the Government; others want a relaxation of the rules of the Bank of England’s Special Liquidity Scheme.

The Irish Government announced the guarantee in an attempt to avert a run on the Republic’s banks. Irish bank shares crashed on Monday amid fears that depositors were pulling out their money.

Anglo Irish Bank’s shares rose by 68 per cent after Brian Lenihan, the Irish Finance Minister, announced the €400 billion (£317 billion) guarantee. The Government will also underwrite the banks’ loans and debts for an undisclosed fee. The guarantee extends to hundreds of thousands of savers in the UK, who hold deposits with the banks’ subsidiaries, including savers with cash in accounts run by the Post Office.

“If funds are not secured by the Irish banks, it will be a very, very serious matter for the economic life of this community,” Mr Lenihan said.

Brian Cowen, the Taoiseach, told the Dail: “The option of doing nothing, of not making a move, would put at risk the entire stability of the Irish financial system.”

UK depositors using UK branches of Allied Irish Bank and Bank of Ireland are covered.

Irish banks said yesterday that British customers were clamouring to open sterling accounts. Allied Irish Bank, which has £12 billion in UK deposits, mainly from corporate customers, reported an increase in interest from new customers yesterday and said that its website had been swamped with inquiries.

Savings accounts offered by the UK Post Office are covered by the guarantee because they are administered by the Bank of Ireland.

Angela Knight, the head of the British Bankers’ Association, acknowledged that UK banks would lose out. “You’re bound to see a bit of flow,” she said. “Governments will need to iron these things out.”

Although ministers have assured depositors in British banks that their savings are safe, they have stopped short of issuing an explicit government guarantee, as they were forced to do for Northern Rock depositors in the wake of the panic in September last year. President Sarkozy, of France, and Didier Reynders, the Belgian Finance Minister, have made much more straightforward promises to depositors in the past few days.

Kevin McConnell, an analyst for Bloxham Stockbrokers, said that the Irish Republic was now the safest place in Europe for global depositors to store funds. “This could act as a blueprint for a lot of countries across Europe in how they fix the credit crisis,” he said.

However, the move could backfire and hit the credit rating of the Republic. Credit default swaps on Irish sovereign debt - basically, insurance policies against default - ballooned yesterday.

One policy reform being pushed by some British banks is an extension of the Bank of England’s Special Liquidity Scheme to allow assets of inferior quality to be pledged in return for highly tradable government bonds. At present, only high-quality securitised mortgage assets can be pledged, but bankers are pushing to be allowed to offer securities backed by buy-to-let mortgages, self-certified mortgages and even more toxic assets.

Some banks are also pressing hard for measures to insulate them from mark-to-market accounting rules, which force them to write down the value of assets to market levels.

Treasury insiders and other well-placed official sources played down any immediate prospect of a “grand plan” to bail out British banks.

Any decision was likely to wait to see whether the US Congress approves a revamped bailout plan for the financial industry, which larger British banks are expected to be able to access.

Money Central: the six safest places for your savings

Times Recommends

• Toyota recalls 437,000 cars including Lexus
• Myners says bonuses are bleeding pension funds
• Japanese company faked safety reports on seats