Bank run in the UK

[friedo]

This is rather alarming.

The jitters plaguing financial markets spread to the high 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.

Yikes! I can’t even remember the last time there was a legitimate run on a major bank anywhere (not that I keep tabs on British banks as a matter of course, but I think I would have heard something.)

Anyway, if you have deposits there, I hope they’re insured.

[jjimm]

It’s like Mary Poppins all over again.

[jjimm]

Joking aside, this is indeed very worrying.

IANAEconomist, but from what I’ve been reading it’s the US sub-prime fiasco going abroad to roost.

Northern Rock used to be a building society, but it became a bank, its modus operandi being to lend money on the strength of money borrowed in the market. However, because UK banks have been investing our money in US sub-prime, then it’s gone tits-up, they’re all overexposed and none of them will lend money to each other. So it’s had to resort to going to the Bank of England for a rescue, which is only prepared to lend it money at one per cent over its own base rate.

So far, a billion pounds - that’s two billion of your earth dollars - or 1/24 of the bank’s assets, has been withdrawn by antsy customers.

I sincerely hope this is an anomaly, and doesn’t happen to other institutions, or our economy will be fucked.

[Nanoda]

I found that news surprising; my understanding may be way off, but I believe that in Canada most savings accounts are insured via the CDIC.

I didn’t think I’d see another bank run after Mary Poppins.

[Baron_Greenback]

@Nanoda

I found that news surprising; my understanding may be way off, but I believe that in Canada most savings accounts are insured via the CDIC.

There’s an insurance scheme over here too - 100% of the first £2,000, and then 90% of the next £33,000. Anything over that with a failed bank is potentially lost.

The worry is that Northern Rock’s (probably) temporary liquidity problem is being over-reacted to, and the media prognostications of doom will become self-fulfilling prophecies. In which case, some other institution will pick up a sound loan book for pennies in the pound.

Anyone know what the current price of gold is?

[chowder]

You’ll be OK ** Struan**, don’t you Scots keep your money under the bed wrapped in Haggis

[Rysto]

This is the list of what’s covered and not covered by the CDIC in Canada. Surely the UK has a similar system?

Edit: It’s only fully insured up to the first £2,000? That’s insane! Here in Canada, the first $100,000 CAD is insured fully!

[Baron_Greenback]

@chowder

You’ll be OK ** Struan**, don’t you Scots keep your money under the bed wrapped in Haggis

We’re still using shiny stones.

[Baron_Greenback]

@Rysto

Here in Canada, the first $100,000 CAD is insured fully!

Yeah, but that’s only about 50 quid!

[zelie_zelerton]

@Rysto

This is the list of what’s covered and not covered by the CDIC in Canada. Surely the UK has a similar system?

Edit: It’s only fully insured up to the first £2,000? That’s insane! Here in Canada, the first $100,000 CAD is insured fully!

No, it’s insured fully for the first £2000. After that it is still insured but only up to £35000 and only for 90%. So if you have £35000 and everything went tits-up you could possibly lose about £3000. Not that a huge number of people HAVE savings of £35000.

I heard one guy on the news talking about why he was withdrawing his savings. He said it was crazy for everyone to be withdrawing the money because the BoE was bailing NR and that he was sure it would blow over. He dismissed the queues at NR branches as hysteria. But he was still going to withdraw the money because ‘well everyone else is, aren’t they?’

:rolleyes:

[Rysto]

After that it is still insured but only up to £35000 and only for 90%.

Of course not, but anybody with more than £2,000 is going to want to withdraw the money. Why risk losing 10%?

[zelie_zelerton]

@Rysto

Of course not, but anybody with more than £2,000 is going to want to withdraw the money. Why risk losing 10%?

You’re right. Panicking is the answer.

[StarvingButStrong]

I’ll bet all the burglars in England are rubbing their hands in glee. Why settle for a TV or computer you have to fence at ten cents on the dollar, when you can just collects gobs of cash from under each mattress?

[jjimm]

@StarvingButStrong

I’ll bet all the burglars in England are rubbing their hands in glee. Why settle for a TV or computer you have to fence at ten cents on the dollar, when you can just collects gobs of cash from under each mattress?

Northern Rock is only issuing checks.

zelie, there is precedent for people losing all or most of their savings: Equitable Life (the company that gave me my first office job) and the Maxwell farrago to name but two. If I had savings in N.R. I’d get 'em out too.

[StarvingButStrong]

@jjimm

Northern Rock is only issuing checks.

Dang. And I thought I’d hit on a scheme to finance a nice vacation in England…

[zelie_zelerton]

Indeed jjim. Negligence and criminal activity within a business will cause losses.

I don’t think there’s any reason to panick over NR savings just quite yet.

[Desert_Nomad]

@jjimm

Northern Rock is only issuing checks.

You mean, you can’t get cash? No wonder everyone is concerned. A check is only as good as the bank that issues it… doesn’t seem like something I’d want. Cash or gold please.

[samclem]

@friedo

Yikes! I can’t even remember the last time there was a legitimate run on a major bank anywhere (not that I keep tabs on British banks as a matter of course, but I think I would have heard something.)

LIved a sheltered life, have we?

http://www.fdic.gov/bank/historical/managing/Chron/1985/index.html (this is just the US)

Selected quotes from that site:

Seven banks failed on May 31, 1985, the largest number of insured banks ever to close in one day (up to that date).

Economic conditions continued to get worse for the Southwest and its banking industry. A recession began in the agricultural industry. Southwest bank failures more than doubled to 29 for the year. Agricultural bank failures peaked at 62 for the year.

Of course, there were comparitive few “runs” on the banks. But Home State Savings in Ohio and some Maryland banks were certainly there.

According to officials of the Maryland Deposit Insurance Fund Corporation, successor to the Maryland Savings Share Insurance Corporation (MSSIC), the March 1985 events in Ohio, coupled with the telecast of a story on “60 Minutes” concerning the failure of an uninsured private bank in Nebraska, caused a “silent run” on deposits at thrifts insured by MSSIC.8-11 In April, federal officials warned the Governor of Maryland that MSSIC institutions had lost $375 million in deposits over the previous two months. In May 1985, the public announcement of a criminal investigation at Merritt Commercial Savings and Loan (Merritt), Baltimore, Maryland, and newspaper publicity generated by problems at Old Court Savings and Loan (Old Court), Baltimore, Maryland, caused depositor runs. Merritt lost $3 million in deposits on a Saturday morning, and four days later a conservator was appointed for Old Court.

On May 14, a withdrawal limit of $1,000 per month for all MSSIC insured institutions was imposed by the Governor of Maryland, although exemptions were later allowed for hardship cases, such as mortgage payments and payroll payments. The state ultimately assumed responsibility for all MSSIC insured deposits, and all insured depositors were paid. The final payment was made to insured depositors in November 1989.8-12

Got that? You could only take out $1000 of your money per month.

And, Northern Rock was lending, in some cases, up to 125% of the value of a home. Greed will get you every time.

[Number]

@jjimm

Northern Rock used to be a building society, but it became a bank, its modus operandi being to lend money on the strength of money borrowed in the market.

You’re thinking of the place all wrong – as if they had the money back in a safe. The money’s not here. Your money’s in Joe’s house…right next to yours. And in the Kennedy house, and Mrs. Macklin’s house, and a hundred others. Why, you’re lending them the money to build, and then they’re going to pay it back to you as best they can. Now what are you going to do? Foreclose on them?

[jjimm]

@Number

You’re thinking of the place all wrong – as if they had the money back in a safe. The money’s not here. Your money’s in Joe’s house…right next to yours. And in the Kennedy house, and Mrs. Macklin’s house, and a hundred others. Why, you’re lending them the money to build, and then they’re going to pay it back to you as best they can. Now what are you going to do? Foreclose on them?

And every time a bell rings, a trader has a myocardial infarction.