Government Gives Further Northern Rock Guarantee

Volatile bank Northern Rock has today again been in the media spotlight after the UK treasury gave further guarantees to its customers to protect deposits and new savings with the institution.

The troubled lender has been suffering from a crisis of confidence as well as a shortage of liquidity in recent weeks, with customers fearing for the safety of their deposits. The new extension will see unlimited protection for consumer savings that have been deposited since the previous 19th September deadline.

It has been suggested by Northern Rock that they are paying for the privilege of the Treasury support, so as not to overly prejudice the interests of more prudent banks in keeping with Mervyn King’s original stance in relation to the Bank of England’s support packages.

The guarantee will protect 100% of all new deposit savings with the bank since the previous cut off date, in an attempt to allow the bank to take in more liquid deposits to help ease short term financial problems at the bank.

It has also been rumoured to have borrowed an extra £10 billion to fund its short term lending operation in addition to the previous emergency packages put in place to keep the institution afloat in recent months.

It remains to be seen whether or not Northern Rock will be able to remain independent or whether it will be required to be taken over to provide long term stability to the institution responsible for a large percentage of the UK mortgage market share.

Shares in Northern Rock were up by around 20% on the day as a result, reflecting a strong turnaround in the outlook of the bank’s immediate future as far as investors are concerned, increasing the level of cash injection required for any prospective takeover bid that may be tabled.

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