Bank run raises questions over safety net

Neither the compensation scheme backing savings in UK banks nor the regulator’s assurances were enough to stop a run on Northern Rock. IR&A looks at how the bank’s woes have escalated to become a major issue for the whole of the financial services industry with the potential for more regulatory change.

The sight of queues outside Northern Rock branches must have sent shivers down the spines of all in the financial services industry, not least the regulator and the government. A crisis of confidence is incalculably damaging to a sector’s reputation. Aside from the fact that the regulator has repeated Northern Rock’s solvency and the Bank of England agreed to provide a loan that caused the initial panic, the perception of a crisis needs to be managed as well as an actual collapse.