The Government’s refusal to guarantee all bank deposits is "adding to the pressure" on the financial system, a former cabinet minister and investment banker warned today.

Tory Lord Forsyth of Drumlean, former vice chairman of Investment Banking Europe at JP Morgan and currently a senior managing director at Evercore Partners, said immediate action was needed.

The former Scotland Secretary asked at question time: "With the very substantial sums of money not covered by the guarantee, is it any wonder that people are moving their money about and adding to the pressure on banks and building societies?

"Do you not see that what is needed now is action - action this day to guarantee deposits, to end the uncertainty and also to end the leaks about Government discussions with the banks which is undermining confidence and a making a serious situation worse."

Lord Davies of Oldham, for the Government, had said that for banks 98% of accounts and 60% of deposits would be covered by the £50,000 compensation limit, as well as 97% of accounts and 77% of deposits in building societies.

He said the FSA has acted in increasing the compensation figure from £35,000 and the Government was working on the issue with other European countries.

Labour former Treasury minister Lord Barnett asked: "Would it not be better if the Government made quite clear that there was no likelihood of any depositor losing any money from any existing banks or building societies?"

Lord Davies replied: "There isn’t, because our major banks and building societies are entirely secure. It is the case that we have one or two incidences of runs on banks and building societies which did require prompt action that has been carried out."

Pressed by Tory Lord Higgins on the value of deposits not covered by the compensation scheme, Lord Davies replied: "It’s an extremely difficult calculation to make and we are not in a position to do that."