Money News
In a move aimed at stemming further runs on beleaguered bank, Northern Rock, the Chancellor, Alistair Darling, has pledged to guarantee in full all existing deposits held with the bank. The move follows three days' of queues outside various Rock branches across the country that has seen an estimated £2 billion in savings withdrawn from the bank.
Savers already had some measure of protection under the Financial Services Compensation Scheme which protects 100% of the first £2,000 in any bank account and 90% of the next £33,000 - giving a maximum payout of £31,700 if a bank does go bust. However, Darling's proposals go further in that existing savers won't lose a penny in the unlikely event of the bank becoming insolvent - irrespective of how much they've got stashed away.
Darling said that people could continue to take money out of the bank, but that if they chose to leave it there it would be secure. The move, he said, will put the security issue beyond all doubt as well as maintain a stable banking system.
Assuming the initiative works it could end up being a smart move as it will reduce the level of fear that has seen the bank's share price crash by more than 30% in successive sessions. Indeed, by stabilising the bank's share price it may encourage would-be suitors - hitherto minded to stay on the sidelines as the share price went through freefall - to re-declare their interest. And if the Rock is eventually taken over, what in effect is a Government subsidy - ready to be exercised as a last resort - will no longer be required.
To hammer home the point Northern Rock is running an ad campaign in the national press stating that if you want all or some of your money back you will get it back, but if it stays with the Rock it will remain secure.
18 September 2007 © Moneyextra.com
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