British bank Northern Rock praying for panic to pass
LONDON (AFP) — Bailed-out British bank Northern Rock was hoping Sunday its attempts to reassure panicking customers would pay off as the lender tried to avoid falling victim to the global credit squeeze.
Britain's fifth-biggest mortgage lender told customers their money was safe as they tried to avert a third day of chaotic queues outside branches as worried people made frantic attempts to grab their savings back.
Politicians and regulators were desperate to stop the panic spreading.
Finance minister Alistair Darling, who authorised the Bank of England's bail-out of Northern Rock, said it was vital to maintain stability and confidence in the British banking system.
Meanwhile the Financial Services Authority (FSA), the chief financial watchdog, reiterated it judged Northern Rock to be solvent.
But that did not stop disgruntled customers rushing to branches nation-wide Saturday.
"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 north 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.
The Bank of England on Friday agreed an emergency lending facility for Northern Rock, which said it was facing severe difficulties raising cash to cover its liabilities.
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.
"In light of the continuing extreme global liquidity crisis, which is impacting markets around the world, we have had to slow down our lending activities and will continue to do so until markets normalise," Northern Rock told customers on its website.
In response to the question "Are my savings safe?", the bank said: "Yes. Our relationships with our customers are of paramount importance to us and there will be no change to your account or the service we will provide to you.
"Operationally, the company remains in good shape and the fundamental strengths of the business and brand remain unchanged."
However, that may not be enough to stop customers withdrawing their cash online Sunday and in branches when they reopen Monday.
Darling said Northern Rock was the only bank that had approached the Bank of England for emergency funding.
"The reason that I authorised the Bank of England to make facilities available to Northern Rock is because it is in the public interest that we maintain the stability and confidence in the British banking system," he told Channel 4 television.
The FSA also sought to calm the situation and the watchdog said any problems experienced by customers online or in branches were "entirely logistical" and "in no way related to the bank's solvency."
"To be absolutely clear, if we believed that Northern Rock was not solvent, we would not have allowed it to remain open for business," FSA chairman Callum McCarthy said.
David Cameron, the leader of Britain's main opposition Conservatives, slammed Prime Minister Gordon Brown, accusing him of failing to rein in borrowing during his decade as finance minister from 1997.
"This government has presided over a huge expansion of public and private debt without showing awareness of the risks involved," Cameron wrote in The Sunday Telegraph newspaper.
"Though the current crisis may have had its trigger in the United States, over the past decade the gun has been loaded at home.
"Under Labour our economic growth has been built on a mountain of debt.
"Meanwhile, for all its past talk of prudence, the government has been on a spending and borrowing spree of gigantic proportions."
The Observer newspaper said it was down to Brown to "clean up this mess."
"The government has turned a blind eye to the cheap credit bubble because it benefits at the polls when the nation feels flush," the Sunday weekly's editorial said.
"The government and the FSA must act on irresponsible lending.
"The cheap credit boom is over.
"It is time the government acknowledged it too."
Nick Leeson, whose rogue trading brought down Britain's venerable Barings Bank in 1995, said greed, incompetence and a reliance on computers to predict the future was behind the crisis.
"The storm clouds have been gathering for some time," he wrote in The Mail on Sunday newspaper.
"Yet again, bankers and those who regulate and police them have placed at risk not only their own jobs but the livelihoods of everyone in Britain and across the world."
