Plans are afoot to extend a new Irish law protecting 100% of savers' money to include foreign-owned banks with a large retail presence in the country.

The £315 billion scheme, which so far covers six Irish banks plus the Post Office, has attracted the interest of Bank of Scotland (Ireland) and Ulster bank (which is owned by the Royal Bank of Scotland). Despite both these banks being regulated by the Irish Financial Regulator, their savers are only protected up to €100,000.

Mark Duffy, chief executive of the Bank of Scotland (Ireland), says: "While it is clear that the government recognises our strong financial position in designing this scheme, it is important that there continues to be a level playing field so that customers enjoy equal choice from all Irish licensed banks."

All applications to the scheme will be considered on a case-by-case basis, the Irish Department of Finance said.

However, the plans have come in for heavy criticism from European politicians who fear that the move could harm other banks.

The British Bankers' Association (BBA) claims that the new law will "distort competition", with many British banking customers reportedly considering moving their savings across to a 'safer' home.

A spokesman for the BBA says: "The extent of the guarantee has clear consequences for firms competing to win retail deposits and, while we support proposals aimed at re-introducing stability to the financial markets, we need fair play for financial institutions across Europe."

Alex Potter, an analyst with Collins Stewart, says: "[The government is] only guaranteeing domestic banks which massively skews the competitive picture within Ireland, let alone across Europe. We now anticipate depositors withdrawing funds from non-guaranteed banks."

The European Commission has said it is "in close contact" with the Irish government amid fears that the move may give Irish banks an unfair advantage over their foreign competitors. It has also warned individual member states not to act alone in attempting to bring stability to the banking sector.

Jose Manuel Barroso, president of the European Commission, says: "We are asking and urging member states for closer co-operation. It is critically important for the confidence in the markets that we have credibility in our joint actions regarding the current situation."

The Irish decision to guarantee deposits came after a run on banking shares which saw Anglo Irish bank plummet by 46% on Tuesday.

France is also reported to now be considering a similar move.

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