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Government steps in to stop Northern Rock panic

Date 18 Sep 2007

Northern Rock has said business is back to normal as it waits to see whether a government promise to protect savers' deposits will reassure customers. Shares in the bank rose 10% this morning after Chancellor Alistair Darling said the Government would guarantee all existing deposits with Northern Rock. 

Many groups were yesterday calling for the Government to step in and boost savers' confidence by underwriting the 10% of savings up to £35,000 not covered by the Financial Services Compensation Scheme. Under the scheme, depositors are entitled to get back the first £2,000 in their account and 90% of the next £33,000.

James Ramsbotham, North East Chamber of Commerce chief executive, yesterday said: "Alistair Darling has come out strongly over the weekend in defence of Northern Rock and in support of the solidity of its business. This is extremely welcome. The Chancellor would not have issued such statements had the Bank of England and the Financial Services Authority not given complete assurance that Northern Rock is a strong and viable business.

"However, there is clearly a divide between the reality and fear factor and this has prompted a wave of unnecessary withdrawals. Mr Darling can apply the brakes on this knee-jerk reaction by guaranteeing to savers that all £35,000 of their savings are safe. Northern Rock is a fine institution and a model corporate citizen that has fallen victim to extreme changes in the money markets. This situation can be rescued but it will take strong leadership by the Government to resolve the hysteria witnessed at the end of last week."

Under the measures unveiled by Mr Darling, Northern Rock savers would not lose a penny, regardless of how much they had deposited.



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