Increased consumer awareness over savings protection could have helped Northern Rock
December 30, 2007
According to the Chairman of the UK’s financial regulator, the Financial Services Authority. Northern Rock could have been saved from becoming the first victim of a run on a British bank in 150 year had consumers been more aware of the savings protection that was in place with regards to their money.
When it became public knowledge that Northern Rock had taken an emergency loan from the Bank of England savers flocked to take out their savings, and in the space of just a few days over £2 billion was withdrawn from the bank by worried savers that were convinced that the bank was on the verge of collapse.
However, Callum McCarthy, the FSA Chairman, acknowledged that many consumers had not really been aware of the savings protection that was in place, and also stated that if they had been aware of this it could have made things far easier for Northern Rock. He stated: “If there is greater understanding of the position of individual depositors, if they know they’re 100% covered up to a certain amount, if they know they’re going to get very rapid repayment, it is much less likely that there will be a retail run.”
At the time of the Northern Rock crisis savers had the first £2000 of savings guaranteed 100%. They also had a 90% guarantee on the next £33,000 of their savings. Since the Northern Rock incident the guarantee has been raised to a 100% guarantee on all £35,000 worth of savings, and according to reports the Chancellor of the Exchequer, Alistair Darling, is still considering offering a guarantee on the first £100,000 of savings to increase protection for consumers and avoid this sort of situation from arising again.
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