The EU is proposing to raise the level of protection available to depositors from €20,000 (15,500) to €100,000 (£77,500) within a year in a bid to improve confidence.

In the meantime, the coverage will rise to €50,000 (£38,800) and in addition, the payout period in the event of a bank failure will be reduced from three months to three days.

The proposed rules are a result of a meeting between EU finance ministers last week and follow individual action from states, initiated by Ireland, to guarantee all deposits.

The proposal will now pass to the European Parliament and the Council of Ministers for consideration.

Individual member states can choose to add to these minimum levels, the European Commission added.

Internal market and services commissioner, Charlie McCreevy, said: “Increasing the minimum protection will strengthen Europeans’ confidence in the safety of their deposits.

“The new rules go hand in hand with the commitment made by EU Finance Ministers only one week ago, and are another sensible and proportionate response to the financial turmoil we are experiencing.”

The EU said the measures should prevent bank runs, which are damaging to the economy.

The UK has already raised protection to £50,000 and Alistair Darling has pledged to help savers with Icelandic banks who have cash invested beyond this level.

According to estimates, about 65 per cent of eligible deposits are covered under the current regime. The new levels would cover an estimated 80 per cent (with coverage of €50,000) and 90 per cent (with coverage of €100,000) of deposits.