The decision was made by Premier Liu Chao-shiuan, speaking at a legislative interpellation session yesterday amid concerns that a financial crisis sweeping U.S. and European banks could be spreading to Asia.

The Financial Supervisory Commission (FSC) announced Monday night that the government would guarantee all bank deposits of up to NT$3 million per depositor per bank, up from the existing cap of NT$1.5 million.

The new policy will only cover savings accounts, time deposits, checking accounts and personal retirement pension accounts, while foreign currency accounts and structured notes will not be included, the FSC said earlier.

Local financial authorities made the move after observing a shift in recent weeks of ten of billions of Taiwan dollars in deposited funds from smaller private banks to accounts in government-controlled institutions, such as the Bank of Taiwan and postal banking system maintained by the post offices.

Depositors feared their hard-earned money could evaporate if the non-governmental banks collapse. But their shifting of money to government banks is also creating a financial burden on the smaller banks in the private sector.

Premier Liu decided to remove the limit to ease fears that the financial crisis gripping the industrialized Western nations might overwhelm local financial institutions.

Liu urged citizens not to be too pessimistic about the current financial climate, noting that confidence is important and that the government "will protect the people's assets by guaranteeing all deposits at domestic banks."

He further said the government will strictly supervise domestic banks to make sure they meet capital adequacy requirements, as stipulated by law.

The premier added that he has already instructed the FSC, the central bank and Ministry of Finance to closely monitor the situation and make adequate preparations to maintain stability in our financial markets.

Liu also called for depositors to "trust the government" and for "everyone to work together to get through this difficult situation."

At a press conference held in the evening, FSC Vice Chairwoman Lee Jih-chu said all deposits, including those in foreign currencies, regardless of size will be 100 percent guaranteed by the government as long as the money is deposited in the legitimate financial institutions run by the government or in the private sector.

The rules apply also to credit unions and cooperatives run by local farmers and fishermen's associations.

However, the government has no plans to raise the deposit premium rates charged from financial institutions for the time being, Lee said.

She said new and detailed deposit insurance regulations will be submitted to the Cabinet for approval later this week for implementation.