Darling guarantees savings

Tuesday, 18, Sep 2007 12:00

The chancellor provided some respite for Northern Rock customers last night by promising the Bank of England (BoE) will underwrite existing savings in the country's fifth largest mortgage lender.

Alistair Darling insisted the British economy – characterised by low inflation and low interest rates - was robust enough to withstand market instabilities.

He said: "Our economic, monetary, fiscal and regulatory framework and tripartite system for the financial markets has underpinned the stability of our economy, and has enabled us to deal with previous international financial turbulence."

Moving to restore bruised consumer confidence, Mr Darling stressed Northern Rock was solvent "with a strong long term loan book".

This veracity of this last point has been questioned by some, who claim Northern Rock was employing irresponsible business practices in the months preceding the crisis in an effort to aggressively expand its share of the mortgage market.

However, Mr Darling continued to argue the bank's problems were not deeply entrenched, brought about by "short-term liquidity difficulties".

He continued: "The support I authorised the BoE to offer Northern Rock last week is designed to overcome these short-term difficulties, and to enable it to do its business in the normal way.

"In the current market circumstances, and because of the importance I place on maintaining a stable banking system and public confidence in it, I can announce today that following discussions with the governor and the chairman of the FSA, should it be necessary, we, with the BoE, would put in place arrangements that would guarantee all the existing deposits in Northern Rock during the current instability in the financial markets.

"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."

Gordon Brown is due to meet his cabinet this morning to discuss the evolving situation.

Northern Rock shares have now recovered by 11 points from yesterday's dramatic fall.