( BBC ) - Chancellor Alistair Darling says he is looking at ways of guaranteeing people's savings held by a bank or building society up to ?100,000.
He told the Times newspaper it was a "bullet that needs to be bitten" and would be paid for by a levy on banks.
Mr Darling said he was considering a wide package of financial reforms - but that these were still in the early stages of development.
The Bank of England has called for more protection for customers' savings.
'American-style system'
The current system, guaranteeing 100% of the first ?2,000 and 90% of the next ?31,000, contributed to this month's run on Northern Rock, says the Bank.
It was "logical" for savers with more than ?33,000 to rush to take it out, its governor Mervyn King told MPs this week.
Some of the planned changes to banking rules were already in the pipeline before the run on Northern Rock and would be announced when the House of Commons returns next month, Mr Darling said.
According to the Times, he is looking at an American-style system, where savers' money is guaranteed and paid out days after a bank collapses, funded by a levy on banks and other financial institutions.
The chancellor will himself be called before the treasury select committee to explain why the Bank of England and financial authorities failed to foresee the recent crisis.
John McFall, chairman of the committee, told BBC News 24 the current compensation scheme was "inadequate," and that the chancellor's proposals were a step in the right direction.
'Underlying problems'
Mr McFall said: "The hundred thousand pounds is a good figure, perhaps it could be more at the end of the day, we don't know, but it's up for discussion.
"We need people to feel reassured that if anything happens that they get their money almost instantly."
Shadow chancellor George Osborne promised the Conservatives would help the government to push through any changes that were needed.
He told BBC News: "We are happy to work with the government to put in place new financial compensation arrangements and speed their passage through Parliament."
However, Liberal Democrat treasury spokesman Vince Cable said the proposals did not go far enough.
He said: "The chancellor's plans to guarantee bank deposits up to ?100,000 is a necessary sticking plaster to stop bleeding from the banking system.
"But there are much deeper wounds that need properly addressing as soon as possible."
Mr Cable agreed that the money should come from the banks rather than taxpayers.
The whole lending system needed to be looked into, he said, blaming the government for showing a "complete neglect" of household debt problems.