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Relief as Northern Rock shares up Relief as Northern Rock shares up
(30 minutes later)
Shares in stricken lender Northern Rock bounced back after the government's promise to protect savers' deposits. Shares in Northern Rock have recovered some ground after the government promised to protect savers' deposits.
Desperate to restore faith in British banks, Chancellor Alistair Darling pledged the Bank of England would guarantee all existing deposits.Desperate to restore faith in British banks, Chancellor Alistair Darling pledged the Bank of England would guarantee all existing deposits.
The unprecedented move lifted Northern Rock's shares by more than 11% and the number of worried savers queueing at branches to take their money out fell. The unprecedented move lifted Northern Rock's shares by more than 6% and the number of worried savers queuing at branches to take their money out fell.
Northern Rock has said it is "business as usual" in newspaper adverts.Northern Rock has said it is "business as usual" in newspaper adverts.
The recovery in Northern Rock's shares comes after more than half of the company's value was wiped out since Friday. The rise in Northern Rock's share price comes after the bank has seen more than half of its value wiped out since Friday.
Shares in other banks that have suffered since then as a result of fears they would be next in line to go to the Bank of England for emergency funding also recovered. Shares in other banks also recovered on Tuesday. Alliance & Leicester, which saw its shares fall by a third on Monday, was up 25%.
Britain's eighth largest bank Alliance & Leicester rose 24.75% after its shares slumped by a third on Monday, while Bradford & Bingley climbed as much as 9%, before dropping back slightly. class="bodl" href="#shares">See what went wrong at Northern Rock
The Bank of England also announced that it would inject £4.4bn into financial markets, offering cheap credit through a so-called emergency tender at a rate of 5.75% in an effort to shore up crumbling confidence in the UK banking system.The Bank of England also announced that it would inject £4.4bn into financial markets, offering cheap credit through a so-called emergency tender at a rate of 5.75% in an effort to shore up crumbling confidence in the UK banking system.
'Troubled times''Troubled times'
Northern Rock took out a full-page newspaper advert in most of the major newspapers on Tuesday, emphasising that the company is "well-managed" and will not let its customers down. class="" href="http://newsvote.bbc.co.uk/1/shared/fds/hi/business/market_data/shares/3/23193/intraday.stm">Northern Rock shares price
Even if a panic is irrational, if everyone else is rushing to get their money, it is quite rational to want to get your money before it runs out Evan Davis, BBC economics editor Northern Rock took out a full-page newspaper advert in most of the major newspapers on Tuesday, emphasising that the company was "well-managed" and would not let its customers down.
It contains a statement signed by the bank's chief executive Adam Applegarth designed to reassure savers. The advert contained a statement signed by the bank's chief executive Adam Applegarth designed to reassure savers.
"The simple fact is that the chancellor has made it clear that all existing deposits in Northern Rock are fully backed by the Bank of England and are totally secure during the current instability in the financial markets," the statement says. "The simple fact is that the chancellor has made it clear that all existing deposits in Northern Rock are fully backed by the Bank of England and are totally secure during the current instability in the financial markets," he said.
"These have been troubled times but Northern Rock will prevail.""These have been troubled times but Northern Rock will prevail."
The move comes after three days of long queues at branches up and down the country as customers withdrew more than £2bn of their money - about 8% of Northern Rock's total deposits. The move came after three days of long queues at branches up and down the country as customers withdrew more than £2bn of their money - about 8% of Northern Rock's total deposits.
There were still queues of about 70 people at a Northern Rock branch in Golders Green on Tuesday morning waiting for the bank to open at 0800 BST as some worried savers were not placated by the government's reassurances that their savings were totally secure. There were still queues of about 70 people at a Northern Rock branch in Golders Green and about 50 in Kingston-upon-Thames on Tuesday morning, as some worried savers were not placated by the government's reassurances that their savings were totally secure.
But in its home town of Newcastle, the streets around the bank were quiet.But in its home town of Newcastle, the streets around the bank were quiet.
In the north east, there has been a general sense of support for the lender which employees about 4,500 people locally and has given donations worth about £175m to community organisations through its charity arm.In the north east, there has been a general sense of support for the lender which employees about 4,500 people locally and has given donations worth about £175m to community organisations through its charity arm.
On Tuesday morning, former manager of Newcastle United football team Sir Bobby Robson said he would open an account at Northern Rock. On Tuesday morning, former manager of Newcastle United Sir Bobby Robson said he would open an account at Northern Rock.
'Solvent business''Solvent business'
The Financial Services Compensation Scheme 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 did go bust. The Financial Services Compensation Scheme that covers banks has come under fire as a result of the crisis.
But under the measures unveiled by Mr Darling, Northern Rock savers would not lose a penny, regardless of how much they had deposited. It 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 did go bust. FSA chief executive Hector Sants told the BBC's Radio 4 Today programme that he would be looking to improve the savers' guarantee scheme, which he said "has limitations", particularly with regard to larger deposits.
In effect, this would nationalise the Northern Rock if it went out of business, potentially leaving tax-payers to pick up the bill. In a separate interview with the BBC, FSA chairman Callum McCarthy criticised Northern Rock's heavy reliance on short-term loans to fund its mortgage business as "extreme".
This has been criticised by the Conservative Party, but Mr Darling, the Treasury and the FSA have repeatedly said that Northern Rock is a solvent business. He said the FSA required banks to "hold capital to deal with issues such as these".
FSA chief executive Hector Sants told the BBC's Radio 4 Today programme that he would be looking to improve the savers' guarantee scheme, which he said "has limitations", particularly with regard to larger deposits. The comments come a day after he said the move by the chancellor was not designed to "save the Northern Rock per se".
See what went wrong at Northern Rock
On Monday, FSA chairman Callum McCarthy told the BBC that the move by the chancellor was not designed to "save the Northern Rock per se".
"It's to make sure that there's not a negative effect on the banking system overall.""It's to make sure that there's not a negative effect on the banking system overall."
Mr Darling said that people could continue to take money out of the bank, but that if they choose to leave it there it would be secure. Northern Rock applied to the Bank of England for emergency funding last week.
BBC economics editor Evan Davis said the chancellor's offer was a "dramatic step" and was, essentially a "money back guarantee". The bank has struggled to raise money to finance its lending ever since money markets seized up over the summer.
"Why have they done it? It's because panics can get out of hand," he said.
"And even if a panic is irrational, if everyone else is rushing to get their money, it is quite rational to want to get your money before it runs out."
Northern Rock applied to the Bank of England for emergency funding last week, but said that it had not used any of the Bank's facility yet.
The Newcastle bank has struggled to raise money to finance its lending ever since money markets seized up over the summer.
Unlike most banks, which get their money from customers making deposits into savings accounts, Northern Rock is built around its mortgage business.Unlike most banks, which get their money from customers making deposits into savings accounts, Northern Rock is built around its mortgage business.
It raises most of the money which it provides for mortgages by borrowing from banks and other financial institutions.It raises most of the money which it provides for mortgages by borrowing from banks and other financial institutions.
WHAT'S HAPPENING AT NORTHERN ROCK? Mortgage lending Northern Rock lends a large amount for mortgages, and finances this with money from banks and savers Savings Northern Rock receives a relatively small amount of money from saversMoney markets Have stopped lending money to Northern Rock due to the crisis in the US sub-prime mortgage marketBank of England Steps into the breach to give Northern Rock an emergency loan Images: PA, GettyWHAT'S HAPPENING AT NORTHERN ROCK? Mortgage lending Northern Rock lends a large amount for mortgages, and finances this with money from banks and savers Savings Northern Rock receives a relatively small amount of money from saversMoney markets Have stopped lending money to Northern Rock due to the crisis in the US sub-prime mortgage marketBank of England Steps into the breach to give Northern Rock an emergency loan Images: PA, Getty
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