Fears Spread Among UK Bank's Customers
Saturday, September 15, 2007; 7:07 PM
LONDON -- Hundreds of customers lined up to withdraw their savings from a British mortgage bank Saturday, ignoring government assurances that their money was safe despite the bank's request for an emergency loan.
Police were called in some cities to steer panicked crowds away as Northern Rock bank branches closed for the day.
Fears have spread over the bank's request earlier in the week for an emergency Bank of England loan amid the global credit crisis. Northern Rock, Britain's fifth-largest mortgage lender, is the first British bank in 15 years to be bailed out by regulators.
Customers withdrew $2 billion from the bank Friday, The Financial Times reported, citing an unidentified person described as close to the situation. The bank declined to confirm the figure, which represents 4 percent of its deposit base.
Treasury chief Alistair Darling and the country's Financial Service Authority tried to assure customers there was no doubt over Northern Rock's solvency.
The authority "has reiterated yet again tonight that it is satisfied that Northern Rock is solvent, can carry on doing business and, crucially, paying out money if people want to withdraw their funds," Darling said on Channel 4 TV on Saturday night.
But The Sunday Telegraph said Northern Rock was preparing itself for a sell-off. Quoting unidentified sources, the paper said one plan would divide the bank's mortgage portfolio between other major banks in what would be a private-sector rescue of the lender.
The bank made the loan request Thursday because it relies heavily on wholesale money markets for cash, and had been unable to borrow the amounts it required from other banks since the money markets choked up last month. That was caused in part by U.S. banks making mortgage loans to Americans with poor credit histories.
Although Northern Rock requested substantial emergency funds at a penalty rate, the bank has said it had billions of pounds in cash at its disposal. It has yet to draw on any emergency funding.
Despite Darling's message, lines stretched around the block Saturday at some of the bank's 76 branches in Britain and the bank extended opening hours to deal with the situation.
"Yes, we are making matters worse, but I do think people need some reassurance from Northern Rock and the government and financial services that their money is safe," account holder Jane Taylor told Sky News while waiting outside a branch in Kingston-upon-Thames, west of London.
But others said they had faith in the bank and financial authorities and watched the lines in disbelief.
"It's mostly, in my opinion, ignorance and that's why they're panicking," said another bank customer who gave only his first name, Tom. "I'm leaving mine there."
Under Financial Services Compensation Scheme, deposits of up to $63,900 are guaranteed should a bank default.
Ron Stout, a spokesman for Northern Rock, told The Associated Press that reckless comments by some analysts about the bank's solvency prompted customers to panic and line up outside branches or strain the company's online banking system.
He said Northern Rock would continue to extend its banking hours, by opening one hour ahead of schedule on Monday, and to reassure customers that their investments are safe with the bank.