Rock guarantee extended


Rock guarantee extended
The government has increased the extent of its involvement in the affairs of beleaguered lender Northern Rock.

In a statement today the Treasury confirmed its guarantee over the troubled bank's liabilities was being extended to cover a wider range of wholesale deposits.

As such, the government has effectively pledged to cover any loss made by a financial institution which provides money to Northern Rock, thus allowing it to carry out its normal banking activities, reports claim.

The Treasury confirmed the arrangements had been extended at Northern Rock's request and said an "appropriate fee" would be paid by the lender over the extension of the guarantee.

It said the move was in line with the previously announced aim of the UK's financial authorities to ensure "financial stability and the protection of the taxpayer and consumer".

The department said the action was also being made in respect of Northern Rock's credit ratings, which Treasury officials are thought to be keen to protect given the current turmoil on the financial markets.

News the government has agreed to guarantee more of Northern Rock's liabilities follows recent calls for the troubled bank to be nationalised in order to protect taxpayers cash.

Last week Liberal Democrat acting leader Vince Cable said he believed bringing Northern Rock into temporary public ownership was "the least worst option" concerning the bank's future, telling the BBC's Today programme government efforts to secure a private sale of the company were not working.

However, Conservative leader David Cameron rejected the idea, claiming it would be "a monumental failure".

Northern Rock opened up to offers after it found itself at the centre of the first run on a British bank in almost 150 years in September, when it was forced to turn to the Bank of England for an emergency loan.

Chancellor Alistair Darling was forced to confirm the government would guarantee the savings of Northern Rock customers in response to the crisis, which occurred after the lender was unable to raise sufficient funds on the wholesale money markets due to the global credit crunch.

It has since borrowed further government-backed cash from the Bank of England, leading to concerns about the extent to which the taxpayer is exposed to Northern Rock's problems.

A consortium led by Sir Richard Branson's Virgin Group and investment firm Olivant, led by the former head of lender Abbey, are believed to be the only two suitors now left in the race to take control of the bank.

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