* EU finance ministers agree higher bank deposit guarantees
* Iceland pegs battered currency
* EU statement says banks may be recapitalised
* Will not allow another Lehman scenario: French minister
(Updates with market moves, more detail and quotations)
By Anna Willard and Jan Strupczewski
LUXEMBOURG, Oct 7 (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 ($68,000), 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.
British 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 <RBS.L> and HBOS <HBOS.L>
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 ($5.44 billion) loan from Russia to
help tackle a financial crisis threatening to overwhelm it.
RECAPITALISATION PLEDGE
Under pressure from fast-moving events, the EU ministers
issued a statement which followed up on pledges by their leaders
on Monday to do all it took to protect depositors and ensure the
stability of the banking system.
"We all commit to take all necessary measures to enhance the
soundness and stability of our banking system and to protect the
deposits of individual savers," the statement said.
"To protect the depositors' interests and the stability of
the system, we stress the appropriateness of an approach
including, among other means, recapitalisation of vulnerable,
systemically relevant financial institutions," it said.
French Economy Minister Christine Lagarde said: "We're not
going to tolerate a Lehman Brothers scenario."
"We will take measures including recapitalisation and we're
very specific in what we say," Lagarde said. "We'll talk about
terms and conditions. We will set down recommendations from the
ministers of finance (regarding) under what conditions
recapitalisation will take place."
Some at least remained somewhat sceptical.
"Everything is evolving so quickly, but a more co-ordinated
response would be more welcome," Alan Brown, chief investment
officer at British fund manager Schroders, told Reuters, saying
the response remained more reactive than proactive.
In Germany, Chancellor Angela Merkel said again there was no
need for the creation of a pan-European rescue fund for banks,
something London also opposes, and French Prime Minister
Francois Fillon said Paris saw no reason to push such an idea.
On the deposit insurance rise, Irish Finance Minister Brian
Lenihan, in the dog-house with some European partners after
Dublin unilaterally took radical steps a few days ago, said:
"Clearly anything we can do to give greater confidence among
depositors is very important."
European governments are struggling to shelter banks and
depositors from the financial crisis that snowballed from the
United States and is now rattling confidence, pummelling stocks
and paralysing wholesale money markets in Europe.
European shares whipsawed through the day on Tuesday after
the plunges of Monday but finished more or less flat following
Monday's plunge.
"COUNT ON THE ECB"
Central bankers are pumping emergency funding into interbank
markets to keep a fear-riven financial system from seizing up.
European Central Bank chief Jean-Claude Trichet, said that
the crisis was striking the heart of the world financial system
but he vowed on Monday to keep pumping money though the system
as long as needed.
Other central bankers joined him in attempts at reassurance.
"We have no reason to think the stock markets will collapse.
There is no reason for that to happen. The companies behind them
are companies that are fundamentally solid," French central bank
governor Christian Noyer said.
Portugal's central bank head Vitor Constancio said the
financial crisis would clearly take a toll on the economy but he
did not expect generalised recession.
The discussion of a collective increase in minimum levels of
protection for savers follows a general political pledge by EU
leaders on Monday that people should not fear for their savings.
Showing how hard it is to agree a common line with ease in
Europe, Czech Finance Minister Miroslav Kalousek was quoted by a
newspaper as saying ahead of Tuesday's compromise that Europe's
politicians were going mad on rises in deposit insurance.
"Politicians in Europe are going crazy. We didn't live
through 40 years of real socialism only to return to it on the
soil of the European Union," he was quoted by daily Hospodarske
Noviny as saying.
IRISH IRE
Germany and others are annoyed with the Irish for going it
alone with state guarantees for all liabilities of six Irish
banks, and doing so via legislation rather than the political
commitment that is being made elsewhere so far.
One worry is that the measure discriminates against
non-Irish banks and skews EU principles that business must
compete on a level playing field.
What sets Ireland's plan apart is that its government not
only guaranteed savers' deposits but also banks' wholesale
liabilities, meaning an institution lending to an Irish bank on
interbank money markets knows the borrower is state-protected.
(Writing by Brian Love, with additional reporting by Jamie
McGeever in London, Francois Murphy and Tamora Vidaillet in
Paris and, in Luxembourg, Marcin Grajewski, Huw Jones and Paul
Carrel. Plus Axel Bugge and Sergion Goncalves in Lisbon, Jana
Mlcochova in Prague, and Omar Valdimarsson in Reykjavik; editing
by Stephen Nisbet)
