Saturday, September 15, 2007
Shades of 1929
A British bank, Northern Rock, was hit yesterday and today by a run of savings withdrawals the likes of which haven't been seen since the failure of the American S&Ls in the 1980s. The Times Online reported it this way—
The jitters plaguing financial markets spread to the high street [main street] for the first time yesterday as thousands of panicking savers queued to withdraw millions of pounds from Northern Rock, Britain’s eighth-biggest bank.
The rush to pull out savings followed the revelation that Northern Rock had been forced to ask the Bank of England for a rescue injection of finance.
The Bank of England pledged to provide unspecified liquidity support to see Northern Rock through the turbulence while it worked on an orderly resolution to its problems. The bank is braced for a fresh surge of withdrawals from its 76 branches to-day and last night was planning to extend its opening hours.
The nerves were exacerbated yesterday when Northern Rock’s computer system collapsed under the weight of online customers scrambling to transfer money out of the bank. Savers were blocked from seeing details of their accounts, including statements, when they tried to log in. A spokesman said accusations that the bank had shut down its system to prevent a drain on its finances were ridiculous.
Ministers, regulators and bankers tried to calm the panic by issuing reassuring statements that customers’ deposits were safe....
Have you been listening to Fed Chairman Bernanke's assurances lately on the limited fallout from the subprime mortgage collapse? You shouldn't. Just remain calm and walk to the nearest exit.
.... It is the first time that the “lender of last resort” facility has been used since the Bank of England set up the present system in 1998. Other banks, including Barclays, have called on the Bank of England for overnight funding in recent weeks, but using the lender-of-last-resort facility is regarded as a much more serious step.
Many financial institutions have been hit by a sudden shortage of cash and other liquid assets as banks hoard money in anticipation of having to provide finance to complex investment vehicles. Triggered initally by defaults by poor Americans struggling to meet increased mortgage bills, the problem has spread.
Around 85 per cent, or £24.7 billion, of Northern Rock’s business comes through mortgage brokers.
Meanwhile, asking prices for British homes were reported to have fallen 2.6% in the month of August.
The BBC reports that the rush on the bank continued today—
On Saturday, queues outside branches such as Sheffield and Golders Green in north London grew so large that police officers were deployed for crowd control.