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Mortgage fears drive run on British bank

The Associated Press | September 15 2007

LONDON — Customers lined up outside branches of a British mortgage bank for a second day Saturday as fears spread over the bank's emergency loan from the Bank of England amid global financial turmoil.

Customers withdrew the equivalent of US$2 billion from Northern Rock, Britain's fifth largest mortgage lender, on Friday, the Financial Times reported, citing a person described as close to the situation.

The bank declined to comment on the figure, which represents four per cent of its deposit base.

Treasury Secretary Alistair Darling and the country's Financial Service Authority tried to assure customers there was no doubt over Northern Rock's solvency and that there was no need to panic.

Many, however, appeared to ignore that message Saturday as lines stretched around the block at branches across the country and the bank extended its opening hours to deal with the situation.

"Yes, we are making matters worse but I do think people need some reassurance from Northern Rock and the government and financial services that their money is safe,'' account holder Jane Taylor told Sky News while waiting outside a branch in Kingston-upon-Thames, west of London.

But others said they had faith in the bank and financial authorities and watched the lines in disbelief.

"It's mostly, in my opinion, ignorance and that's why they're panicking,'' another bank customer, who identified himself only as Tom told Sky. "I'm leaving mine there.''

Under Financial Services Compensation Scheme, deposits of up to $63,900 is guaranteed should a bank default.

Although Northern Rock requested substantial emergency funds at a penalty rate, the bank has said it had billions of dollars in cash at its disposal. It has yet to draw on any emergency funding.

The bank made the request Thursday because it relies heavily on wholesale money markets for cash, because it had been unable to borrow the amounts it required from other banks since the money markets choked up last month.

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