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Brits go on a bank run

Stephen Beard Sep 17, 2007

Brits go on a bank run

Stephen Beard Sep 17, 2007


Scott Jagow: Over the weekend, thousands of people tried to get their money out of a British bank called Northern Rock. Northern Rock is one of Britain’s biggest mortgage lenders. So you can guess why the bank is having problems.

Let’s get the latest from our man in London, Stephen Beard. Stephen, what’s the situation over there?

Beard: Well, this has had a huge impact, because this really is the first big casualty of the credit crunch here in the U.K. Now, we have a bank run. People are seeing thousands of people on the streets outside Northern Rock branches demanding their money back. And you have several people saying these scenes have been reminiscent of the Weimar Republic — this is reminiscent of what happened in Germany in the 1920s. It’s interesting also, it’s been described as the first electronic bank run, since its website has crashed frequently over the weekend as thousands of people clamour to pull their money out.

Jagow: Now, I know that the bank is trying to calm people down and that the British finance minister is trying to calm people down. You even have the U.S. Treasury Secretary, Henry Paulson . . .

Beard: Trying to calm people down.

Jagow: Right. What exactly is he saying?

Beard: Interestingly, when asked about the way the central banks were handling the crisis, he said he was confident in the way U.S. Federal Reserve chairman Ben Bernanke was performing. But he wouldn’t comment on how other central banks were dealing with this credit crunch.

Jagow: Should we read anything into that?

Beard: Well, it’s quite clear that there are divisions. On the one hand, you’ve got the Fed and the European Central Bank that have been pouring money into the system. Whereas on the other hand, you’ve had the Bank of England, saying it wasn’t in the business of the Bank of England to bail out banks that have engaged in excessive risk-taking. Well, that rather lofty hands-off approach came to a juttering halt at the end of last week with what is, in effect, the bail-out of Northern Rock.

Jagow: Well, all eyes will be on the Federal Reserve tomorrow, since the Fed is meeting on interest rates. What are the expectations in Europe for what the Fed will do?

Beard: I think stock markets on this side of the Atlantic will be disappointed if there is a cut of anything less than half of 1 percent. Underneath, there is a growing sense that the credit crunch is not going to disappear overnight, that things are going to get tougher in the weeks and months ahead.

Jagow: All right, our London correspondent Stephen Beard. Thank you.

Beard: OK, Scott.

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