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New turn in Northern Rock crisis
By Jeff Salway
Last week, the Bank of England (BoE) - in agreement with the Government and the Financial Services Authority (FSA) - made an emergency loan to Northern Rock (NRK.L), which hit trouble as short-term loans became inaccessible amid the global credit crisis.
The loan caused uncertainty
among its Northern Rock customers, thousands of whom queued for hours to withdraw billions of pounds in savings from the bank. The queues only subsided on Tuesday, after the Government announced it would fully guarantee all deposits with the bank.
BoE: too slow?
But critics say the guarantee came too late. "The response should have been clearer and quicker," claimed former Tory chancellor Kenneth Clarke. "It shouldn't require queues of pensioners down the high street before the chancellor says something."
It has emerged that the FSA asked the BoE several times to offer an emergency loan to Northern Rock - weeks before it actually did, but the bank refused, suggesting there would be a 'moral hazard' in performing a bail-out.
The crisis has also prompted a review of the Financial Services Compensation Scheme, effectively made redundant in this case by the Government's guarantee of deposits. The FSCS pays out up to £31,700 to deposit account customers - protecting 100% up to the first £2,000; and then 90% of the next £33,000.
Yet - while the average savings account is in the region of £8,500 - a large number of Northern Rock customers were attempting to withdraw savings of well above £31,700. Hector Sants, chief executive of the FSA, said that for those with large deposits the scheme had limitations and that ways of improving it would be investigated.
Northern Rock is now subject to takeover bids, but although savers have been urged not to panic, those with Northern Rock accounts could benefit from shopping around to get themselves a better deal. Savings rates are at their highest in nine years, hovering around the 7% mark. The most competitive offers are currently from Stroud & Swindon Building Society and Birmingham Midshires.
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