If you live in the UK, chances are you won’t have been able to miss the news that the Northern Rock bank are in just a bit of bother right now.
It was announced that the Bank of England was asked as a ‘lender of last resort’ to bail Northern Rock out as they could not raise funds (borrow) on the money markets (other banks). Most banks in the UK have been having trouble on the money markets due to the US subprime crisis but it is rumoured that Northern Rock may be deep into subprime in the UK.
Northern Rock customers were pictured queuing outside of most (if not all) of their branches. Presumably these are investors / savers trying to access their funds and close their accounts. Reportedly, internet banking services for Northern Rock became unavailable overnight Thursday and telephone banking calls were not being answered. Some branches stated they would remain open today until all the queuing customers were seen.
It’s worth noting that if you have money with Northern Rock, you are only fully insured for the first £2,000. The next £32,000 is insured at 90% by FSCS and beyond this there is no insurance. In banking runs, it can sometimes be the case that the number of people trying to withdraw their funds outstrips the bank’s liquidity.
In trading, Northern Rock lost a whopping 32% on their share value which has been falling all year. It was reported in the financial press that at least one major city funds manager withdrew their investment from Northern Rock.
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