By Lorna Bourke

LONDON(Citywire) -Worried investors will breathe a sigh of relief at the government’s reassurance that depositors will not lose money in the collapse of Icelandic bank Landsbanki.

Savers will be compensated 100 percent without limit, although the exact mechanism for claims has not yet been announced and depositors’ money is currently frozen in their accounts.

But the behaviour of the Icelandic government towards foreign depositors raises questions about other government guarantees and it is worth remembering that any guarantee is only as good as the institution giving it.

Last week the Irish government moved to prevent a run on its top banks by announcing a 100 percent guarantee for all deposits in major Irish banks.

It was subsequently confirmed that this included subsidiaries in England, Scotland and Wales. This inevitably prompted a rush of applications from UK depositors, anxious to obtain 100 percent protection for their savings in an Irish bank that was not available from UK banks.

But savers should be aware that the legislation guaranteeing deposits in Irish banks has not yet been passed. It was confirmed in the Dáil this morning that legislation to underwrite 400 billion euros worth of Irish banks’ deposits and inter-bank loans has been delayed. Taoiseach Brian Cowen said the legislation will now not be ready to bring before the Dáil until Wednesday or Thursday of next week.

Cowen indicated there is a need to ensure that bank assets are ring-fenced to ensure that Ireland does not over-extend its cover for banks, or allow them to benefit unfairly against other European competitors.

He confirmed that the government had to take into account what was happening elsewhere, ‘including the bank-rescue package announced this morning by the British government’.  Continued...