People queuing outside a Northern Rock branch to withdraw their savings due to fallout from the credit crisis, September 2007
On 13 September 2007, Northern Rock asked the Bank of England, as lender of last resort in the United Kingdom, for a liquidity support facility due to problems in raising funds in the money market to replace maturing money market problems arose from difficulties banks faced over the Summer 2007 in raising funds in the money markets, caused by the subprime crisis in the United States. The bank's assets were always sufficient to cover its liabilities, but it had a liquidity problem because institutional lenders became nervous about lending to mortgage banks following the US sub-prime crisis. Bank of England figures suggest that Northern Rock borrowed £3bn from the Bank of England in the first few days of this crisis. Previously Northern Rock had increased the interest rates on its own subprime loans. With shares in Northern Rock plummeting by nearly a third, the British Government moved to reassure investors with the bank, with account holders urged not to worry about the bank going bust. The Treasury select committee chairman John McFall MP said: "I don't think customers of Northern Rock should be worried about their current accounts or mortgages." On 14 September, the first day branches opened following the news, many customers queued outside branches to withdraw their savings (a run on the bank). It was estimated that £1 billion was withdrawn by customers that day, about 5% of the total bank deposits held by the Northern Rock.
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Photo credit: © Poppy / Alamy / Afripics
License: Licensed
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Keywords: bank, credit, crisis, northen, panic, queue, rock
