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Panicking savers of Britain's fifth-biggest mortgage lender

dreamgarden
16 years ago

The sub-prime mess continues to wreak havoc both here and abroad....

Panic grips Northern Rock savers for second day

by Ben Perry

Sep 14, 2007

Hundreds of worried customers of embattled British bank Northern Rock queued outside branches for a second day on Saturday to grab savings, ignoring assurances that the mortgage lender will not go bust.

Long queues began forming throughout Britain as people gathered outside branches as early as 6:00 am (0500 GMT).

Extra staff were drafted in and opening hours were extended to deal with the many disgruntled customers.

"I'm an accountant, I should know better (than to worry)," said a man in his 50s who wished to remain anonymous and who had been queuing outside Northern Rock's Golders Green branch in London since 8:00 am.

"I shouldn't be here ... My head tells me it's all right but my heart says otherwise," he told AFP.

At midday the queue outside the Golders Green branch was about 100 metres (yards) long. At some branches, queuing customers were being offered free fruit juice and chocolates.

Panicking savers of Britain's fifth-biggest mortgage lender had begun to withdraw their money en masse Friday, taking out a reported billion pounds (two billion dollars, 1.45 billion euros).

The Bank of England had Friday agreed an emergency lending facility for Northern Rock after the mortgage lender said it was facing severe difficulties raising cash to cover its liabilities amid the ongoing global credit squeeze.

Northern Rock has said it has yet to borrow any money from the BoE's emergency fund.

Nevertheless, the bank is the first major British financial institution to reveal a serious reaction to the global credit crunch sparked last month by a crisis in the US subprime, or high-risk, mortgage sector.

Despite reassurances from Britain's finance minister Alistair Darling that money belonging to Northern Rock's 1.5 million savers was safe, people young and old continued to throng the streets outside the bank's branches.

One customer likened the situation to stores running out of food.

"It is the sugar shortage -- people are going to rush to buy sugar from the supermarkets," customer Jane Taylor, standing outside another London branch, told Sky News.

One couple had Friday mounted a sit-in protest at their Northern Rock branch in Cheltenham, central-western England, after being told they could not withdraw over the counter savings worth 1.0 million pounds as it was in an online account. Police had to be called in to remove them.

British newspapers on Saturday pinned the blame on Northern Rock and even Prime Minister Gordon Brown, but welcomed the action taken by the Bank of England.

"A crisis requires fine judgements and the Bank's decision to act -- assuming it did not respond to political pressure -- looks reasonable," the Financial Times said in an editorial.

The business daily said the Bank should charge Northern Rock a sizeable penalty rate and tide it over until it could be sold.

The Daily Telegraph attacked the prime minister in its editorial.

"Gordon Brown must accept responsibility for this credit bubble: in his 10 years at the Treasury, he was happy to benefit from a sense of faux-prosperity based, not on rising productivity, but on house prices, loans and, to a degree, immigration," the broadsheet argued.

"A snap election, before people realise the full consequences of what he has done, is suddenly looking attractive again."

Brown has so far refused to rule out holding a general election in the coming months amid speculation he may gamble and seek an early mandate for his new government.

The Sun, Britain's biggest-selling daily, said Saturday that Northern Rock was not an innocent party.

"The bank has continued to lend customers five times their salary and 125 percent of their home's value despite all warnings of economic instability and an impending fall in house prices," read the tabloid's editorial.

"These crazy deals have kept the property bubble inflated for too long. They are almost certain to end now and house prices are sure to fall."

Copyright 2007 Agence France Presse. All rights reserved.

Comments (4)

  • sparksals
    16 years ago
    last modified: 9 years ago

    That's pretty scary!

  • triciae
    16 years ago
    last modified: 9 years ago

    A note along this topic...

    Last week, I happened to hear Larry Kudlow on CNBC use the term "run on the bank" during his show. He actually used those words more than once in talking about the credit/solvency crisis. I was quite taken back by it. I was always taught that it was illegal for me, as a banker, to use those words. DH believes the same thing. I know Kudlow isn't a banker but I was still very surprised the network allowed him such latitude with his choice of words. For some people, who may not fully understand what point he was trying to make they may have come away believing that a run on the banks was immenient...hence, becoming a self-fulling prophecy. Anyway, dangerous words, IMO.

    /t

  • punamytsike
    16 years ago
    last modified: 9 years ago

    Based on the above article, that is exactly what was happening Friday in England. Luckily Bank of England is advancing funds to Northern Rock, so they should not run out of money.
    I, at least, have not heard anything like that happening in US.
    Also, does anyone know if deposits are insured in England? In US your first 100K is insured, so at least I have never worried about that money. Should I, triciae?

  • triciae
    16 years ago
    last modified: 9 years ago

    In the US, deposits up to $100K per person are FDIC insured (if you bank at an FDIC participating financial institution which is virtually all of them except for a few private ones). Even many credit unions are insured through NCUA which is supposedly stronger than FDIC.

    /t

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