The crisis in the US subprime mortgage sector may have claimed another victim, this time in the UK.
Worried savers have flocked to some Northern Rock bank branches to withdraw their savings, one report says that a couple tried to withdraw a million pounds at one go. About £2bn has been withdrawn since Thursday, when the bank applied to the Bank of England for emergency funds. It was reported that Northern Rock needed around £1.6bn from Bank of England to stay afloat! Yes, that's right; that's billions!
Problems started for Northern Rock when it lend a large amount for mortgages, and they financed this with money from other banks and their own savers. When the credit crunch started last month, they found themselves in a world of trouble as they had a hard time getting credit from other banks. Add to this was the fact that Northern Rock receives a relatively small amount of money from savers. The Bank of England then had to step in to give Northern Rock an emergency loan.
This tell you how bad the problem is, and how long it might take for the US to unravel everything in the credit crisis. A month after the crisis hit, and we are still facing the fallout. Already the Bank of England had to guarantee all deposits held by savers of the embattled bank. Things have been so bad that reports says that the Northern Rock bank will be taken over by a rival to dig it out of trouble.
One good thing to come out of all this was reports that the British Prime Minister Gordon Brown has arranged a meeting with US Treasury Secretary Hank Paulson to discuss the growing turmoil in world financial markets. Better late than never, I say. We haven't the last of the credit crisis, I'm afraid.