Banking Panic Hits England

These pictures show nervous customers waiting in long lines this week throughout England to get their money out of Northern Rock.

Banking panics still happen today. They are not limited to third world countries. They were not eliminated during the Great Depression of the 30's. Ask any of these savers and you will hear that banking panics are real and they are scary.

It is very easy to become numb to the endless stories of sub-prime problems. Afterall, they only affect the other people. Right?


But maybe you should ask yourself the following questions?

How safe is my bank? Is it exposed to this widening problem? FDIC insurance only covers deposits up to $100K.

How safe is my money market fund? Most money market funds today try to increase the yield by investing in riskier paper. It is not just US treasuries as usually assumed.


For more details of the banking crisis at Northern Rock, do a quick search and numerous articles will pop up.

At this point, it is unclear if Northern Rock will survive this crisis. The Bank of England provided emergency relief, but Northern Rock has been unable to line up long term funding. Their customers will be ok, however. The Bank of England has guaranteed all deposits at the bank, even those deposits above England's FDIC equivalent of about 30K pounds or $60k.

The crisis is a wakeup call to the Bank of England. As recently as a week ago, they had completely stayed out of the global credit crisis by pursuing a tough-love approach. Not only have they changed directions by 180 degrees, they have also caught considerable criticsim in the way they have handled the problem. Telling frustrated savers waiting in line that they are "irrational" tends to bring angry rebuttals.