About £1 billion was withdrawn by panicking Northern Rock customers on Friday, as fears for the bank's future sent shock waves through the City and caused its shares to crash.
The company's phone lines were jammed for most of the day, its website crashed and the 72 branches were besieged by thousands of worried customers after it admitted having to ask the Bank of England for emergency funding.
The scenes came as the financial turmoil that has engulfed the money markets in the past month spilled on to the High Street.
The Daily Telegraph understands from sources close to Northern Rock that the panic generated by news of the emergency funding led to customers withdrawing about £1 billion from their accounts. However, it is believed the bank privately feared that this total could have been higher.
On a day of widespread concern over the economy:
• Northern Rock's shares fell by 31 per cent, leading to the bank - the fifth largest lender - being put up for sale.
• Other major lenders, including Bradford & Bingley, Alliance & Leicester and Paragon, issued statements insisting they were not in similar trouble.
• The Chancellor appealed for calm and insisted that both the banking system and the economy were stable.
The Bank's decision to help Northern Rock - by guaranteeing funds of up to £31.5 billion - is the first time since 1973 that it has bailed out a High Street lender.
Northern Rock tried to reassure its 1.4 million savers, 800,000 mortgage holders, as well as its thousands of shareholders, that it was not in serious danger.
Adam Applegarth, the chief executive, said: "In these extreme times we are pleased to have a high-quality asset base and remain confident in the excellence of our strong customer franchise, our efficient business platform and our well-known brand."
However, his words failed to reassure thousands who queued outside the bank's branches from early morning.
The bank has deposits exceeding £20 billion, so with about 1.4 million savers, yesterday's withdrawals amounted to an average of about £700. Some branches stayed open late to deal with the crowds and there were reports of fights in one queue and even a confrontation with staff where police had to intervene.
In Cheltenham, Christopher Howard, 64, a former hotelier, and his wife Fiona, 48, refused to leave the bank until staff transferred their £1 million savings, held in an online Northern Rock account.
A spokesman for the mortgage lender, which had £24 billion of savers' deposits at the start of the week, said it had anticipated the customer reaction when it approached the Bank of England.
"It is understandable that customers are concerned but the Bank of England, the Treasury and the Financial Services Authority have all confirmed Northern Rock is solvent," he said.
Ten tips to help you safeguard your savings Couple's office siege over £1m savings The company said it had yet to use any of the Bank of England's facility but analysts said it was only a matter of time.
Northern Rock is still writing new mortgages "albeit at a lower level than usual", the spokesman said.
Savers' money was safe, financial experts said. But Martin Lewis, of the website MoneySavingExpert.com, said this did not mean people should necessarily keep their money with the bank.
"Almost all of Northern Rock's savings rates can easily be beaten by the best buys on the market anyway. So this is a good occasion to check their rates and ditch and switch to earn more elsewhere."
Rival lenders rushed to take advantage of the chaos in the mortgage market, with both Abbey and First Direct offering eye-catching fixed rate deals.
However, others including Bradford & Bingley and Alliance & Leicester felt compelled to issue statements saying they were unaffected by the chaos.
Paragon, a buy-to-let specialist, saw its shares fall 17 per cent but quashed City rumours that it was next in line, saying it had "adequate" funding until 2008.
Opposition MPs said the crisis was the culimination of 10 years’ mismanagement by the Gordon Brown-run Treasury and "reckless lending" by banks.
Angela Knight, the chief executive of the British Bankers’ Association, hit back: "Everyone should calm down and refrain from making simplistic comments in a very complex area which cause unnecessary concern. The British banking system is carefully regulated and overseen which ensures that all banks operate safely and prudently in the interest of their customers."
Alistair Darling, the Chancellor, said the fact that the Bank stepped in was proof that the system was working efficiently.
Northern Rock’s shares fell 201p to close at 438p, as the company said its profits would be almost £150 million lower than expected this year.
Its troubles caused a sell-off of banking and property company shares and the FTSE 100 index of leading shares closed at 6,289 — a fall of 74 points or 1·17 per cent.
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link to www.telegraph.co.uk]
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