Bank of England has finally stubbed all speculations of Northern Rock by officially taking over the reins for a tentative period of 1 year. Northern Rock had to live with the after effects of the US sub-prime crisis owing to its over-exposure. There were rumors that the bank would fall prey to the bids from Virgin Group and an in-house management team. Now it is clear that not even a single financial institution has been spared which ever got exposed to the mortgage crisis.
Northern Rock is Britain’s 5th largest mortgage lender, which is considered to be one of the safest banks with 150 years of banking history behind it. The government appointed committee will now conduct a review on the bank to determine whether the share holders are eligible for any returns. The committee is understood to go against the wishes of the share holders by making little or no compensation. Share holders are the most disappointed lot, and are threatening legal action against nationalization. Trade unions too fear same kind of treatment towards them by cutting jobs.
Banking sources suggest that, on one day alone, clients have withdrawn money to the tune of £1 billion or 4 – 5% from retail deposits. Though they have not divulged the figures of the amount withdrawn, they claim there are enough resources to cover all the savings the customers have deposited. Northern Rock is now credited with the status of first bank being bailed out by the Bank of England in 15 years. These developments certainly leave doubts to the world at large whether neo-liberalism and deregulation are passé. Ruthless economics applied by the privatized financial entities to earn fast bucks are now gradually getting exposed. Such global developments will certainly make the emerging economies to have a rethink on the privatization implemented on war footing in these countries.