Robert Peston has written this morning that (edited):

The most important markets announcement this morning is that the Irish government has placed an unlimited two-year guarantee on all deposits and some debt in six Irish banks, to "safeguard the Irish financial system".

This has huge ramifications for us. Potentially it puts British banks at a massive competitive disadvantage - especially since other European governments are also taking urgent steps to reassure their citizens that their bank deposits are safe. There is a widespread perception that the £35,000 limit to deposit protection in the UK is inadequate - and that it makes our banks more at risk of a run on retail deposits.

So top of the list of what this government could do to limit the damage to us from Washington's bail-out bungle would be to announce with immediate effect that all deposits in UK banks are 100% guaranteed by the government.

The chancellor did this after the run on Northern Rock last September.

There's a powerful argument that he should do it again.

Well, maybe he's right. But he has to answer these questions (or we do, for him):

1) How can the Irish government do that? Where do they think the money is coming from?

2) If we do this what does it mean for bank equity? Let's be clear: it has gone: these banks are now state backed as all the risk lies with the taxpayer.

3) If that is true, what is to prevent us claiming ownership now?

I know, of course, that banks are international in nature. But the failures will be nationally based. In that case I think the time for independent banking is over for now. Let's anticipate the crisis: let's bring them under state control now before any more fail and work out how to give them operational freedom again later, if appropriate. This is, as I've said before and I will say again, a crisis at least as big as a war. Emergencies require serious reactions. Emergencies won't come much bigger than this.

Guaranteeing deposits is playing at the edges: taking control is what is required. And right now it is banks refusal to deal with each other that is causing this crisis. So right now we'll have to force them to share their capital if that's the only way forward.

As for compensation: forget it: there won't be any, so don't ask. If there's one thing we learned for Congress last night, bankers calling for public money causes offence.