A run on the banks

It's not getting much press coverage here, but the mortgage crisis is creating bank panics in England.

The Government made an unprecedented intervention in the Northern Rock crisis yesterday by publicly guaranteeing all the bank's deposits. The intervention, by the Chancellor, Alistair Darling, capped a dramatic day that had seen further mass queuing outside Northern Rock branches and billions wiped off banks' shares on fears of contagion.

The worst hit of the other banks was Alliance & Leicester, which tried to stem fears that it would be the next bank to seek emergency funding. Bradford & Bingley was another to feel the pain.

The slump in Alliance & Leicester's shares raised fears of its customers making mass withdrawals of their savings in a second run on a British bank, and the Leicester-based mortgage lender had to act quickly.

But it was the Northern Rock crisis that continued to cause the most concern. The bank's shares fell by 35.4 per cent, and mass withdrawals continued, bringing the total withdrawn in the past week to £2bn.

In an attempt to calm the panic, Alistair Darling, the Chancellor of the Exchequer, said: "Should it be necessary, we, with the Bank of England, would put in place arrangements to guarantee all the existing deposits in Northern Rock during the current instability. This means people can continue to take their money out of Northern Rock but if they choose to leave their money in Northern Rock it will be guaranteed safe and secure."

Mr Darling said that if forced to, the Government would use Northern Rock's assets to fund the deposits. City analysts said that would be tantamount to nationalising the bank.

The Treasury said the Government could provide backing for other lenders if necessary, depending on their financial situation.

Before Mr Darling's statement, thousands of people had continued to queue outside Northern Rock branches and bombard the bank's website to get their money out, causing fears the Newcastle-based bank would be unable to continue trading. About £2bn of the bank's £24bn of deposits was taken out before yesterday with another £1bn likely to have been taken out yesterday.

Hopefully, Americans won't catch this disease.