Darling calls for calm as Northern Rock loses £2bn
Customers continue to panic despite chancellor's attempts to calm the storm.
Monday, 17, Sep 2007 12:00
Panicked Northern Rock customers have withdrawn an estimated £2 billion following the Bank of England's (BoE) decision to provide emergency funding to the bank on Friday.
The run on the bank has caused long queues at Northern Rock's branches across the UK and the lender has opened early at 8am today to deal with the increased demand.
The bank's online banking facilities have also been experiencing troubles, with customers unable to log on to monitor their finances due to the high demand.
On Friday, Alastair Darling stepped in to ease pressure on borrowers by approving the BoE’s emergency loan to Northern Rock.
The chancellor has since attempted to reassure customers, claiming his prerogative is to do everything in his power to “ensure a stable banking system”.
These pleas have not prevented criticisms from David Cameron, however, who accused the government of failing to act swiftly enough to prevent the tumult.
Speaking today to the BBC, the chancellor insisted the UK economy was strong enough to sustain shocks to the system.
He stressed that the domestic economy had flourished during economic crises as others faulted, and reassured it would continue to do so in the present climate.
Northern Rock chief executive Adam Applegarth has also been on the offensive to calm fears.
"Your money is safe with us and if you want some, or all of it back, then you are perfectly entitled to it," he wrote in an open letter to customers.
"Whilst you may have to wait a little longer than usual to receive it, you will get it. However, your savings are secure."
The Financial Services Authority (FSA) also tried to ease the panic.
"To be absolutely clear, if we believed that Northern Rock was not solvent, we would not have allowed it to remain open for business. It is open for business and it can continue to receive deposits and allow customers to make withdrawals," said Callum McCarthy, chairman of the FSA.
The crisis has been caused by the current global liquidity crisis that has seen banks increasingly unwilling to lend to each other.
Without Northern Rock's usual source of funding for mortgage lending, it has turned to the BoE to act as lender of last resort, borrowing cash at a penalty rate.
Howard Archer, chief UK economist at Global Insight, believes the problems will not have a ripple effect across the financial world.
He said: "While it is undoubtedly a major event, Northern Rock's problems should in themselves have limited repercussions for the overall economy.
"It appears that Northern Rock's problems are a consequence of its particular reliance on the money markets to fund its mortgage activities. Furthermore, all of the indications are that it is in no danger of going bust and that it has a good quality loan book."
Northern Rock's share price has since fallen by around a third, amid fears further falls could lead to a take-over bid from a rival. The lender has already lost a reported £2 billion since crisis struck on Friday. Shares which cost £12 a year ago are now worth £3.08.
Share prices for other banks have also suffered.