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September 15, 2007

Northern Rock

Well, looks like with the Northern Rock we actually have ourselves a proper little bank run.

About £1 billion was withdrawn by panicking Northern Rock customers on Friday, as fears for the bank's future sent shock waves through the City and caused its shares to crash.

That's about 5% of their deposit base: you wouldn't expect a bank to have much more than that on hand, if they would in fact have that much.

The thing is, from the stories, I can't see that they are actually likely to go bust. Unless, that is, everyone lines up on Monday and tries to get the other £19 billion out.

I wonder though what will happen today. I assume they're open on a Saturday? Will they actually have enough cash to hand for those who want to withdraw it? The moment people are denied the opportunity to get "cash" is the moment the panic will spread. So, perhaps more than the support of the Bank of England in the wholesale markets, they need the help of a fleet of Securicor vans. Wonder if they'll get it?

September 15, 2007 in Finance | Permalink


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FWIW my hunch is that some are deliberately trying to crash the system.

Posted by: Bob B | Sep 15, 2007 9:41:51 AM

I suspect most money has been withdrawn via the internet.
Time to put the "It's a Wonderful Life" on the telly;)

Posted by: Kit | Sep 15, 2007 10:34:47 AM

On protection for depositors:

"Anyone with money in a savings account with the Northern Rock - or indeed any other bank - needs to realise that some of their money is always at risk, if they are saving more than £2,000.

"Banks are covered by the Financial Services Compensation Scheme.

"If you have up to £35,000 on deposit then you would, in the event of insolvency, get back all of the first £2,000 in your account and 90% of the next £33,000.

"That would be a total of £31,700 per person in compensation, or to look at it another way, a loss of £3,300.

"But any money above the £35,000 threshold might be lost altogether."

Posted by: Bob B | Sep 15, 2007 12:04:15 PM

You can't get that much cash out of a branch anyway, unless you've got a helmet and a van. Money laundering regs prohibit it. My guess is that most of these people are swapping a deposit with Northern Rock for a banker's draft written on Northern Rock.

Posted by: dsquared | Sep 15, 2007 12:29:17 PM

You are guaranteed 100% of the first £2,000 and 90% of the next £33,000 by the government. Of course if Northern Rock goes bankrupt (a major possibility) you'll be asking for your money back, along with millions of other savers. You won't see a penny for months (or possibly over a year) and will lose the interest you'd have gained if you'd transferred your money on Monday. The price you'll pay is maybe a few tenths of a percent in interest. What price is peace of mind?

Tijm adds: Give that they can now call on the unlimited credit of the Bank of England it's most unlikely they will go bust. Might be the safest place in the country right now.

Posted by: Justin | Sep 15, 2007 3:37:52 PM

According to the FT, about £250m in cash was withdrawn from branches.

Tim adds: That's a lot, isn't it?

Posted by: james C | Sep 15, 2007 5:26:31 PM