EU in deposit and recapitalisation deal as crisis rages

By Anna Willard and Jan Strupczewski

LUXEMBOURG (Reuters) - EU finance ministers, seeking a confidence-booster as the global financial crisis pounded tiny Iceland on Tuesday, agreed to increase the minimum level of bank deposit insurance across the 27 European Union countries.

They also pledged to recapitalise any vital bank if needed to avoid, as France put it, another Lehman Brothers, the Wall Street giant that filed for bankruptcy last month as the worst financial crisis since the 1930s intensified.

The ministers agreed to raise the minimum deposit guarantee to 50,000 euros (39,000 pounds), half of what some wanted but more than double the 20,000 euros that is the floor level now.

They struck the deal as more trouble hit banks following weekend rescues in Germany and the Benelux countries.

Shares in some of Britain's big banks were hit by reports of talks on government cash injections and a source in the British banking industry said more urgent talks would take place in coming days.

Prime Minister Gordon Brown scheduled an evening meeting with his finance minister, central bank chief and the country's financial regulators, though Brown's spokesman dismissed suggestions it was a "crisis meeting."

Shares in Royal Bank of Scotland and HBOS plunged nearly 40 percent on the day.

Iceland, which is not in the EU, took over its second largest bank, propped up a battered currency and said it was seeking a 4 billion euro (3.1 billion pound) loan from Russia to help tackle a financial crisis threatening to overwhelm it.