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Savers still withdrawing despite banks bouncing back

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by Kay Mitchell

Northern Rock customers continue to queue through the night in an attempt to withdraw their savings in spite of Northern Rock shares rising 30¼p to 313p, up 11%.

The Bank of England has pumped £4.4 billion into the financial markets to help offset the disturbance to conditions in the short-term money markets.

Furthermore, shares in Shares in Alliance & Leicester were up yesterday after rumours that they were headed the same way as Northern Rock.

The rise in Northern Rock shares was not as convincing as some analysts had expected after falls of more than 30% since the end of last week. However, the uncertainty that hit Alliance & Leicester and other banks does seem to be over.

Adam Applegarth, Northern Rock’s chief executive, announced that they were open for business as usual. He also apologised to customers and stated that they are a well-managed company and continue to be a safe place for savings, mortgages and loans.

A spokesperson for the Financial Services Authority (FSA) said that the current compensation scheme for savers only guarantees the first £2,000 of deposits and 90% of the next £33,000 so this will have to be reviewed given the Northern Rock crisis. The spokesperson added that the existing industry backed scheme does have its restrictions, especially in relation to large deposits and it does seem reasonable that this may well have been a contributing aspect to the loss of confidence seen with Northern Rock depositors.

Callum McCarthy, FSA Chairman whose salary is £460,000, implied that Northern Rock customers had behaved in a strange manner but did confess that ministers and regulators would find it difficult to change the confidence of investors.

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News posted: September 19, 2007

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