Gas Week

EWN Publishing

Bank of England offered emergency loans to Northern Rock; customers ignored assurances that bank was solvent, but raced to withdraw more than £2 billion

Posted by gasweek on 26 September, 2007

Last week the Bank of England offered emergency loans to Northern Rock, the nation’s fifth-largest mortgage lender, in­sisting that it was willing to help British banks overcome the liquid­ity crunch but would not under­mine market discipline by bailing out the shareholders of banks that ran into trouble.

That strategy failed, as North­ern Rock customers ignored as­surances that the bank was solvent and raced to withdraw more than £2 billion or almost 10 per cent of the bank’s total deposits, reported The Australian, (22/9/2007, p. 43).

Government would guar­antee every penny: Darling’s announcement that the Government would guar­antee every penny of customers’ deposits saw most of the 76 Northern Rock branches open without queues to get in their doors, although a few branches, such as that in Golders Green in London, still had queues. Many of the customers who withdrew money in recent days incurred penalties and lost interest to do so, and Northern Rock was last night enticing them back by saying their penalties would be cancelled if they quickly returned the money.

The Australian, 22/9/2007, p. 43

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