A Sikh stands in a queue of customers today at a branch in Leeds of the Northern Rock building society and bank, Britain’s fifth largest lender, as he waits patiently to withdraw all his savings.
London, Sept. 15: Similar scenes were being repeated at Northern Rock branches across the country, a day after many of its 1.5 million customers ignored appeals not to be stampeded into taking panic measures and withdrew an estimated £1billion.
The liquidity problems at Northern Rock, which has received financial support from the Bank of England, are a knock-on effect of the recent lending crisis in the US.
In India, where a number of cooperative banks have collapsed, people may be familiar with customers triggering a run on savings, but in Britain such scenes are almost unprecedented — save in the case of the Pakistani-dominated Bank of Credit and Commerce International in 1991.
Had the Sikh customer talked to a careful analyst of the British financial world, Sonjoy Chatterjee, the managing director and chief executive officer of ICICI Bank UK, he might have been reassured.
Some experts are predicting that as a brand name Northern Rock is doomed and that it will disappear from High Streets within a year, but Chatterjee told The Telegraph today: “I looked at the market very carefully yesterday and there is nothing to suggest it is going to collapse.”
This might well be the case but many savers are rushing to withdraw their savings in a process which started to escalate yesterday as the crisis at Northern Rock dominated the news agenda.
Anyone who loses money as a result of a firm regulated by the Financial Services Authority going bankrupt is entitled to compensation under the present rules. Savers are paid the first £2,000 of any money they have lost in full, as well as 90 per cent of the next £33,000.
However, there is no protection for savings beyond that — and it is known many small Indian businessmen have more cash than that stashed away in Northern Rock and other institutions.
Despite reassurances that their money is safe, many Northern Rock customers have been queuing to get their money out — “just in case”, a middle aged man told BBC radio.
Chatterjee’s opinion is shared by the British Bankers’ Association whose spokesman said: “Northern Rock is a sound and safe bank and there is absolutely no reason for either mortgage customers or savers to worry.”
And Gordon Brown’s successor as Chancellor of the Exchequer, Alastair Darling, declared: “People can use their accounts in the usual way, they can carry on making their mortgage payments in the usual way. Northern Rock will be able to carry on its business.”
But today, so many customers tried to get their money out online that the system ground to a halt.
Jane Taylor, a customer queuing outside the Kingston-upon-Thames branch in west London, admitted to Sky News: “Yes, we are making matters worse but I do think people need some reassurance from Northern Rock and the government and financial services that their money is safe.”
John Flynn, 62, a customer in Manchester, said he was not prepared to take the risk of leaving his savings in his account “ because the bank might go under next week”.
A typical comment came from 74-year-old Mike Mellon: “I’ve got a number of accounts here. It’s my life savings. I think the risk is pretty low but you never know.”
As to how the turmoil in global markets would affect Indian banks, Chatterjee struck a reassuringly upbeat note: “Indian banks have been largely unscathed by the global turmoil. I will shortly be announcing a set of market leading announcements. As Indian companies look to make large acquisitions abroad, they can look to Indian banks for their market lending. No Indian bank has any liquidity problem.”