The fate of Northern Rock, as a business, looks ever more ominous. The position of the bank’s customers, in contrast, looks ever more assured – despite the understandable concern of the savers snaking up and down the high street. The explicit, watertight government guarantee for all depositors issued yesterday afternoon by Alistair Darling, the Chancellor of the Exchequer, should mean that an economic disaster of Black Wednesday proportions has been avoided.

Now tough questions about responsible regulation, and detailed questions about bank guarantees need to be asked. It is the first time that the current regulatory framework, set up by the new Labour Government at the same time as the Bank of England was given operational independence in 1997, has faced a widespread collapse in confidence. With the benefit of hindsight it is easy to suggest the Financial Services Authority (FSA), which took primary responsibility for financial regulation from the Bank in 1997, should have done more. And while a wider safety net might have saved Northern Rock, it would have entangled all comers. The price now being paid by its shareholders, and, perhaps, employees, must be set against the wealth, jobs and improved living standards enjoyed elsewhere.

Searching questions must be asked, however, of the relationship between the FSA, the Bank of England and the Treasury. This disparate regulatory structure meant that no person of authority came forward to make the clear statement necessary to reassure customers. The FSA, the Bank of England and the Chancellor, on behalf of the Treasury, have all been guilty of poor judgment.

Mr Darling, having supplied blanket reassurance, now needs to ensure that the current depositor protection scheme is reformed in detail. At present, UK savers are guaranteed as matter of course, 100 per cent of the first £2,000 of a deposit, 90 per cent of the next £33,000 and nothing thereafter. A clear 100 per cent guarantee for all sums up to, say, £100,000 would be preferable. This may mean extra charges for customers but the threats posed to other commercial banks by disappearing customer confidence in Northern Rock may mean the private sector will ultimately be persuaded to fund these new guarantees.

If retail, and indeed commercial, customers are to be convinced about the safety of their money the authorities may also need summary powers to take control of a bank in distress. The delays and complications involved in any takeover orchestrated under current rules mean an approach from a commercial or state-sponsored body could prove fatally time-consuming.

Confidence in the financial markets would be shattered by a housing market downturn, now forecast by no less a person than Alan Green-span, the former Chairman of the US Federal Reserve. If declines in house prices were steep enough, the Northern Rock rescue package could unwind because the cash made available is secured on residential property. Yet it is unlikely that the Northern Rock rescue will be undermined by a housing market collapse. As Mr Green-span suggested, small investment bubbles are making the market frothy and future growth in house prices may slow or even stop. But the fundamentals of the UK housing market are sound.

Although yesterday’s action from the Chancellor’s is welcome, it should not be seen as a binding precedent for any financial institution in distress. What is necessary in the short term may well be untenable in the long term.