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Northern Rock shock By Jeff Salway
The news that Northern Rock (NRK.L) was forced to ask the Bank of England for rare emergency funding has sent shockwaves through Britain's banks. The BoE's intervention, agreed with the Government Although it said 2007 profits could be around £100 million less than expected, Northern Rock insists that it is no danger of going bust, while chancellor Alistair Darling said no other bank had asked for help and that the industry remained robust. The difficulties have arisen because Northern Rock is built around its mortgage business, which means it borrows from other banks and financial institutions in order to provide mortgages. In recent weeks, however, short-term borrowing has become scarce due to the credit crisis affecting the global economy. The loan provided by the BoE is on the condition that Northern Rock hands over some of its customers mortgages as collateral, causing uncertainty among it's borrowers. But despite the sharp fall in its share price, which makes it particularly vulnerable to potential takeover bids, Northern Rock customers and investors have been reassured there's no cause for panic. "Anyone who is a saver or has got a mortgage with Northern Rock can be absolutely confident that they have got their money with or have borrowed from a very sound financial institution," said Angela Knight, chief executive of the British Bankers Association. The Council of Mortgage lenders concurred. "Consumers need to understand that the problem for lenders at the moment is in raising funds, not in lending quality," said Michael Coogan, its director general. "The Bank of England would not have provided the loan to Northern Rock if it had concerns about the quality of the lender's own business." To read more views and opinion on the crisis at Northern Rock, read the Editor's blog: Northern Rocky.
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