Raising the guarantee on people's bank savings to £100,000 will not be enough to prevent a repeat of the Northern Rock crisis, Chancellor Alistair Darling has been warned.

A move to an American-style system which will see savers' money separated out in the event of a bank collapse and paid out within days is being considered, Mr Darling disclosed.

Although a figure has not yet been decided upon, he said a guarantee for up to £100,000 is possible. He added the scheme will be paid for by a levy on banks and other financial institutions.

It comes after Bank of England governor Mervyn King identified the current system - where there is a 100% guarantee on just the first £2,000 and 90% on the next £31,000 - as one of the reasons for the panic surrounding Northern Rock.

He told the Commons Treasury Committee that it was "logical" for savers with more than £33,000 to rush to withdraw their money once they saw the bank was in trouble.

The improved guarantee for depositors is expected to form part of a wider package of financial reforms to be announced when the Commons returns next month following the party conferences.

The Conservatives have pledged to co-operate with the Government to push through any changes that are needed.

But John Redwood, who led the Tories' economic competitiveness review, said that the proposals do not go far enough.

He said The Bank of England needs to be able to offer secret support to banks that are in trouble, but Mr Darling appeared to reject this idea.

Mr King told the Treasury Committee that EU regulations barred him from offering secret support to Northern Rock.

Liberal Democrat Treasury spokesman Vince Cable also said that the Government needs to do more.

"The Chancellor's plans to guarantee bank deposits up to £100,000 is a necessary sticking plaster to stop bleeding from the banking system, but there are much deeper wounds that need properly addressing as soon as possible," he added.

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