Alistair Darling today insisted that 98% of accounts held in British banks were "fully covered", as he confirmed that the government guarantee on savings would tomorrow be raised from £35,000 to £50,000.

In a parliamentary statement, the chancellor said it was his responsibility to support a stable, well-functioning banking system, as he revealed that Northern Rock had now repaid half of the money it had been lent by taxpayers.

"Financial transactions are at the heart of everything we do. They allow people to buy goods, pay for services, buy homes, save for pensions and invest, so it's essential that we take action to both support the banking system as a whole as well as being ready to intervene in particular cases when it's necessary to do so," Darling told MPs. "Both general support and individual intervention is necessary."

Darling said that the government had made available in excess of £100bn of long-term funding and was "willing to make further resources available as necessary".

The Bank of England had injected substantial funds into the markets and would continue to do so.

"Tomorrow it will put in another £40bn," he said.

Setting out what had been done in Britain to "deal with developments in Europe over the weekend", Darling said that from tomorrow the Financial Services Authority would raise the compensation limit for bank deposits from £35,000 to £50,000 - or £100,000 for joint accounts.

"This measure will ensure 98% of accounts are fully covered," he said. "The FSA is consulting on whether to increase this limit further."

The Treasury came under pressure last night to guarantee the savings of all depositors in British banks or face an exodus of cash from British financial institutions after Germany announced it was following the lead of the Irish and Greeks and offering a blanket guarantee on all savings.

Gordon Brown was due to speak to the German chancellor, Angela Merkel, today to clarify the extent of Germany's commitment to protect bank deposits, Downing Street said.

British officials were said to be furious that Merkel had given no indication of the move at a summit in Paris on Saturday designed to coordinate a European response to the economic crisis.

But moments before Darling got to his feet, EU leaders issued a joint statement vowing to take "whatever measures are necessary to maintain the stability of the financial system".

"All the leaders of the European Union make clear that each of them will take whatever measures are necessary to maintain the stability of the financial system – whether through liquidity support through central banks, action to deal with individual banks or enhanced depositor protection schemes," the statement said.

"While no depositors in our countries' banks have lost any money, we will continue to take the necessary measures to protect both the system and individual depositors. In taking these measures, European leaders acknowledge the need for close coordination and cooperation."

Darling also told the Commons that Northern Rock – the first British bank taken into public ownership – had now repaid more than half of the taxpayers' money that had been lent to it.

"It continues to repay its loan ahead of schedule," Darling said.

The chancellor said while it would be irresponsible to speculate on any future measures that may be needed to bring order to the financial system "all practical options must remain open".

This morning Brown chaired the first of what will be twice-weekly meetings of his new national economic council, aimed at managing the economic crisis. The meeting, which lasted about an hour, included an update from Hazel Blears, the communities secretary, on the impact of the crisis on the housing market.

Brown has been involved in "intense" international discussions over the weekend about the financial crisis.

Downing Street confirmed that in the past 24 hours Brown had held discussions with the prime ministers of Iceland and Denmark, the managing director of the International Monetary Fund, the head of the European Central Bank and Nicolas Sarkozy, the French president.

Asked whether the government had contingency plans to partially or completely nationalise the banking sector, Yvette Cooper, the chief secretary to the Treasury, said that Brown and Darling had promised to do "whatever it takes" to ensure the banking sector remained safe.

"The chancellor said yesterday that of course that does mean looking at a whole series of pretty big steps that you might not take in ordinary times," Cooper told BBC Radio 4's Today programme.

In a significant shift in position, the Tory leader, David Cameron, said he favoured a recapitalisation to strengthen the banking system.

"It is something parties should talk about, and I think it is something where consensus would be better than opposition." Previously the Tories had spoken of ailing banks being taken over by the Bank of England to run them down and sell off their profitable assets.

Darling has already allowed the bank to put £40bn into the market this week to ease the problems of banks accessing money, but there are increasing signs that this is dealing merely with the symptoms of the problem.

The chancellor also gave a broad hint that he feels the Bank of England is free to cut interest rates on Thursday when he said its remit was not confined to controlling inflation. "The Bank of England also has a wider duty to support the government's economic objectives," he said.

He did, however, reject calls from the Liberal Democrat treasury spokesman, Vincent Cable, to specifically change the bank's remit, saying such a move would undermine its independence. Cable had warned: "We are in a real crisis situation. In an edge of the cliff environment."