Saturday, September 15, 2007

Panic on the streets of Britain: Northern rocked, City shocked

From The Independent:

Yesterday something happened that I have not seen in my lifetime, a run on a major British bank. There were queues outside Northern Rock branches as depositors tried to get their money out.

This is the sort of event that happened in America after the Great Crash of 1929. For Northern Rock, this is catastrophe. For the rest of us it marks the end of an era of easy money.

This cheap money, which fuelled the housing and takeover of recent years, was gradually drawing to a close as the Bank of England increased interest rates. But for those who were prepared to pay the going rate, getting a loan has remained easy enough. Now, with the bail-out of Northern Rock by the Bank of England, it is going to be rather more difficult.

Northern Rock, which has been doing one-fifth of the new home loans in Britain, had to go to the Bank of England for emergency funding. There is, we are assured by the Financial Services Authority, no problem with the solvency of Northern Rock....MORE

Run on the bank

The jitters plaguing financial markets spread to the high street for the first time yesterday as thousands of panicking savers queued to withdraw millions of pounds from Northern Rock, Britain’s eighth-biggest bank.

The rush to pull out savings followed the revelation that Northern Rock had been forced to ask the Bank of England for a rescue injection of finance.

As crowds of customers demanded their money back, shares in Northern Rock slumped by 31 per cent after it alerted shareholders to its difficulties, wiping £900 million from its value. Shares in other financial institutions were also hit, with Alliance & Leicester down 7 per cent and the specialist lender Paragon Group down 17 per cent....From The Times