Finance Minister, Brian Lenihan was coming under increasing pressure from Britain today as billions of pounds flowed into Irish banks because of the Government two-year guarantee on savings.

British Chancellor of the Exchequer, Alastair Darling intervened twice with the Irish Government on behalf of UK banks yesterday, amid fears that the Government's blanket guarantee was causing a flood of funds across the Irish Sea.

British Treasury sources, quoted by The Times of London, said Mr Lenihan was told "in no uncertain terms the scheme was a problem for the UK."

Mr Lenihan told Alastair Darling that the decision to guarantee all deposits at six banks had not been planned, but had been an emergency move to prevent the collapse of one Irish bank leading to the collapse of another.

The Chancellor made two calls to Mr Lenihan in response to signs that savers were rushing to open accounts at Irish-backed banks, including the UK Post Office, whose savings accounts are run by the Bank of Ireland.

Mr Darling urged Mr Lenihan to make the scheme open to British banks in the Republic.

British Prime Minister, Gordon Brown contacted the Taoiseach, Mr Cowen, directly to complain about the Government's bank guarantee.

The Minister for Finance indicated that high street retail banks operating in Ireland which are not Irish-owned may be covered by the guarantee.

Distortion

He would consider applications on a case by case basis, Mr Lenihan said.

The move would appear to open the door for Ulster Bank, and possibly Halifax, to get under the State borrowing guarantee, while excluding National Irish Bank, RaboDirect and ACC.

Angela Knight, chief executive of the British Bankers Association, wrote to the Irish Government today to complain about the distortion of competition caused by the security of Irish deposits. The Association called the Irish plan "anti-competitive" and said it put banks not covered by it, particularly in Northern Ireland, at a "competitive disadvantage".

According to analysts in the UK, billions of pounds have left British banks and entered either one of the Irish banks directly or the Post Office.

A spokesman for the British Building Societies Association said they were "very, very concerned" by the Irish Government's move.

A Bank of Ireland spokeswoman said there was growing evidence that British savers were moving cash to the bank.

The Bank was seeing "a very, very steady increase" in people contacting its call centres from Northern Ireland.

The pattern was thought to be the same across the UK.

Meanwhile, EU Competition Commissioner, Neelie Kroes has confirmed that Ireland's deposit guarantee plan is to be examined by the European Commission to determine whether it confirms with state aid laws.

- Michael Lavery