Nationalisation of the British banking industry has become a serious possibility in the past week, with consequences that could run far deeper than anyone expects.

This column and others have been saying for months that Northern Rock is the safest home for your savings since the government bought it this year.

So many people are belatedly acting on that advice as the financial picture darkens across the globe. The Irish government’s decision to guarantee its major banks’ deposits has caused such a separate rush to safety that its doors may close to new deposits this week.

We are seeing the beginnings of a run on the rest of Britain’s deposit takers because trust is vanishing. The only way to halt this, as prime minister Gordon Brown realises, may be to underwrite the deposits of every bank or building society: nationalisation in all but name.

And it could not be temporary. Any future prime minister scrapping the guarantee would run the risk of depositor losses, which by then would be unthinkable. And the pledge would come at a price. The government would want to limit its exposure by having a say in the way banks are run.

Within a few years the country’s financial culture would be irreparably changed. Innovation would be replaced by safety first. There are advantages to such a revolution, though. Financial products would be simpler, easier to understand and in the main utterly safe. The Financial Services Compensation Scheme’s (FSCS) new limit of £50,000 would be reduced to little more than a theoretical relic.

The stock market would still exist so the adventurous could still buy shares, with investment funds for the more cautious. But, like the unit trusts of a generation ago, most of those would be middle-of-the-road, balanced funds.

Two further consequences might follow. Much of the dynamic, entrepreneurial talent in the financial services industry would seek their fortunes elsewhere, and the triumph of regulation over the free market might prompt a return to the mood immediately after the second world war, when industries were nationalised unless there was good reason not to.

This climate would chime with the continuing criticism of Margaret Thatcher’s 1980s privatisation campaign and could lead to utilities and transport returning to public ownership. But even the 1945-51 Labour government didn’t manage to nationalise the banks as a whole.

My view is that depositors with the big banks will be safe without running off to Ireland. By all means spread your money to keep below the FSCS threshold – until Brown issues a blanket guarantee.

Just keep your finances simple. Jeremy Clarkson reported in his column last week how a dinner-party conversation spooked him into moving money from the highly respectable Union Bank of Switzerland into troubled US insurer AIG, with unfortunate consequences.

That was very bad luck. But if you are going to move money offshore it is more important than ever to research your intended foreign bank and the policy of its regulator. Too boring? Stick with a bank you know.

Sneaky business

UNSAVOURY characters like to use big events to get away with sneaky little schemes – like payment protection insurance (PPI), which is usually taken out to ensure a consumer can keep up a mortgage or other instalment payments if they lose their health or job.

While most eyes have been turned to the growing credit crisis, banks and insurers have been letting their PPI sales teams disguise and mis-sell these poisonous policies.

The Competition Commission says providers overcharge by a staggering £1.4 billion a year. Last week the Financial Services Authority (FSA) rapped the miscreants on the knuckles with a feather, threatening no more than an update next year.

The banks’ and insurers’ trade bodies have been bleating that they take the complaints seriously and have raised their game. But the consumer group Uswitch points out that only one in three buyers are told they have the right to cancel, and fewer than half are told the often extensive policy limitations and exclusions.

The FSA has bared its teeth. In July Liverpool Victoria Banking Services was fined £1.2m less an early-payment discount for adding PPI premiums to loan quotes without telling borrowers.

However, the FSA is going slow over industry-wide action. While it may eventually crack down on the banks and insurers, they will have had an extra couple of years to pick the public’s pockets, just as they have played for time over unfair bank charges.

If you must have PPI, ensure the policy and its price are right for you.

Credit card cons

THE latest booming figures for credit card theft dispel any complacency over the success of replacing signatures with Pins. Apacs, the card issuers’ firm, claims the problem is that the rest of the world has yet to catch up with Britain on Pins, so con merchants take UK card data abroad.

As I predicted when Pins were launched the criminals were bound to find ways of beating the system – so be careful how you flash the plastic.