Government 'guarantees all deposits'
Updated on 17 September 2007
Northern Rock panic bounces the chancellor into guaranteeing all deposits in the bank.
It is day four of the Northern Rock crisis, and a remarkable U-turn to stop the now familiar sight of panicked customers queuing to withdraw their money.
Despite all the efforts of the Bank of England, the treasury and Northern Rock itself, its savers were still queuing up to drain their savings. The reassurance was not enough. The bank run had turned into a sprint.
Just ten hours ago the chancellor was telling Channel 4 News that the promises made by authorities were enough to stop this unprecedented bank run.
"This means that people can continue to take their money out of Northern Rock. But if they choose to leave their money in Northern Rock, it will be guaranteed safe and secure."- Chancellor Alistair Darling
That strategy was clearly not working. Rather than be reassured, savers chose to run.
Total deposits withdrawn thought to total well over two billion pounds. And the stock market seemed to join the savers in their run from much of the banking sector.
Northern Rock's share price fell 35 per cent today - in three days its more than halved in value. Alliance & Leicester fell almost as much --31 per cent and Bradford & Bingley was down 15 per cent.
Alliance & Leicester was forced to deny rumours that it too had accessed the same Bank of England emergency funding. All of which raising the spectre of the Northern Rock crisis spilling over to other financial system
The problem was that financial authorities were boxed in. Anything done to soothe panic - such as arranging emergency facilities, only seemed to spark it. Selling Northern Rock to a bigger bank, another route out, is difficult with its share price in freefall.
And despite the reassurances, only deposits up to £35,000 are covered by a government protection scheme, making it perfectly rationally for savers with larger amounts to be joining those queues.
The middle of the bank run hardly the best time to acquaint yourself with your US counterpart.
Perhaps it focussed the chancellor's mind he announced what's being termed a political decision of the Treasury to temporarily extend protection to all Northern Rock savers
It is a fundamental unpicking of a carefully negotiated deal struck in 2000. Its a measure of the lack of other opinions open to the government to quell the northern rock panic.
Whether it will reassure the savers who didn't believe previous guarantees, we'll find out on the pavements tomorrow morning.
