Northern Rock very likely to go bust


but only because people will think it will...

Will the Bank of England let Northern Rock go under, maybe not, but then they let BCCI go under and Barings!

The problem that Northern Rock face is a lack of confidence in them by the public.

Despite the protestations of the bank, the media, the Chancellor, there were long queues outside many branches of Northern Rock today.

And it is this lack of confidence that will kill Northern Rock, not the loss in liquidity that caused them to ask the Bank of England for an "overdraft" facility.

Banks rely on confidence and faith in the banking system by the public, once that is gone then the bank can't survive.

Banks do not hold the cash (ie notes and coins) that would be needed to satisfy all their savers asking for their money out in cash (nor would they be able to call in their loans quickly and easily).

The problem is that the best thing for savers to do is hold tight, but that only works if all savers do that, reality is that it only takes a few concerned individuals to go and withdraw their savings to cause a run on the bank. More so if such pictures are then broadcast on the national media.

Big question is will this affect the rest of the (fragile) banking system in the UK?

Posted: Fri - September 14, 2007 at 03:18 PM         | |

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