September 14, 2007: Run on Northern Rock Begins; Queues Form Outside Branches

Following a report that troubled British mortgage giant Northern Rock has asked the Bank of England for emergency funding (see September 13, 2007), a run on the bank begins. [Daily Telegraph, 2/26/2008; BBC, 8/5/2008] Northern Rock issues a statement confirming the emergency funding and blaming “extreme conditions” on financial markets. The Bank, the British Treasury, and the Financial Services Authority say they believe Northern Rock is solvent and that the standby funding facility will enable it to “fund its operations during the current period of turbulence in financial markets.” However, this does not reassure savers. The share price plunges 32 percent and depositors try to withdraw their savings. Queues form outside a number of branches, the bank’s website collapses, and its phone lines are jammed. Under current British legislation, savings are only protected up to £33,000 ($66,000). [BBC, 8/5/2008]