The turmoil in global banking hit the streets of Britain on Friday as thousands of Northern Rock customers queued up to withdraw their savings from the UK mortgage lender after it was rescued by the Bank of England.
As regulators and politicians called for calm, Northern Rock – Britain’s fifth-biggest mortgage lender – scrambled to contain the fallout after it became the first British bank in decades to be bailed out by regulators. One person close to the situation said customers had withdrawn about $2bn Friday but Northern Rock declined to comment on the figure, which would amount to 4 per cent of its deposit base.
The rescue demonstrates the risks from a decade of financial innovation in the capital markets, which allowed a small regional lender to wield financial clout far greater than its network of 76 branches would suggest.
It also shows how the turmoil in the financial system that resulted from excessive lending to Americans with patchy credit histories triggered the failure of a bank with no direct links to the US mortgage market.
Also from the Financial Times:
“I’m completing on a house next week and I’m transferring funds today instead of then,” said another depositor. “It’s just a precaution.” Whatever problems Northern Rock had with call centres and websites, the branch opened at 9am sharp and a relieved group of customers trudged in to move their money.
Late on Thursday lenders and borrowers had reported problems accessing the bank’s website after news of the Bank of England’s move was reported. The volume of traffic from depositors and mortgage holders had caused the website to freeze in an indication of the level of customer concern about the bank’s situation.