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'Row' over Northern Rock rescue Rocky trading hits Northern Rock
(about 1 hour later)
The Bank of England and the Financial Services Authority were at loggerheads over the last-minute rescue of Northern Rock, according to newspaper reports. Northern Rock shares have slumped again on speculation that the stricken lender will be sold off at a discount.
As criticism grows over the handling of Northern Rock's rescue, the lender's share price dropped as much as 16.67%.
This reversed earlier gains prompted by the government's promise on Monday to guarantee all the savings in Northern Rock accounts.
Its shares are now down almost 80% since last Friday, but other banks and finance firms continued to recover.
Meanwhile, the Bank of England and the Financial Services Authority were at loggerheads over the last-minute rescue of Northern Rock, according to newspaper reports. Top British bankers are sickened that their industry should have been tarnished by those pictures of anxious depositors scrambling to withdraw funds BBC Business Editor Robert Peston See Peston's blog
According to the Financial Times, FSA officials had reportedly urged the Bank to offer an emergency loan to Northern Rock weeks before the crisis.According to the Financial Times, FSA officials had reportedly urged the Bank to offer an emergency loan to Northern Rock weeks before the crisis.
But the Bank refused, citing the "moral hazard" of a bail-out.But the Bank refused, citing the "moral hazard" of a bail-out.
On Wednesday, calm appeared to have returned to financial markets, as savers returned and bank shares rose. On Wednesday, calm appeared to have returned to financial markets, as savers to Northern Rock returned and investors regained confidence in the banking sector.
But sentiment in Northern Rock was again hit with increasing speculation that the Newcastle lender will be bought at a much lower price than its already severely dented share price.
Fingers pointedFingers pointed
Meanwhile, senior Conservative politicians have criticised the government for dragging its feet over its decision to underwrite the savings of Northern Rock deposit account holders.
Former Conservative Chancellor Ken Clarke told the BBC on Tuesday: "I did not expect to see the government ever having to reassure worried savers with money guaranteed by the tax payer.
"The response should have been clearer and quicker. It shouldn't require queues of pensioners down the High Street before the chancellor says something."
Top British bankers are sickened that their industry should have been tarnished by those pictures of anxious depositors scrambling to withdraw funds BBC Business Editor Robert Peston See Robert Peston's blog
Others have blamed the FSA's light regulation for fuelling a system under which banks like Northern Rock could grow rich using cheap debt.Others have blamed the FSA's light regulation for fuelling a system under which banks like Northern Rock could grow rich using cheap debt.
The Bank of England had initially refused to prop up Northern Rock's business after the Newcastle lender found it could no longer access affordable short-term loans in the money markets because of the global credit crisis.The Bank of England had initially refused to prop up Northern Rock's business after the Newcastle lender found it could no longer access affordable short-term loans in the money markets because of the global credit crisis.
History of Northern Rock How the government would honour its promise to Northern Rock savers
The Bank's view was that a bail out would send wrong signals to the banking sector, encouraging the continuation of risky practices.The Bank's view was that a bail out would send wrong signals to the banking sector, encouraging the continuation of risky practices.
But Northern Rock executives believe that earlier action could have averted the crisis over the past few days that saw thousands of savers queuing up at branches up and down the country to withdraw their money. The bank's share price slumped by more than half in two days.But Northern Rock executives believe that earlier action could have averted the crisis over the past few days that saw thousands of savers queuing up at branches up and down the country to withdraw their money. The bank's share price slumped by more than half in two days.
Quick sale
Recriminations have also been levelled at the Bank of England for not doing enough to help engineer a swift sale of Northern Rock when it was clear it was headed for troubled times.Recriminations have also been levelled at the Bank of England for not doing enough to help engineer a swift sale of Northern Rock when it was clear it was headed for troubled times.
Initially, the Bank refused to extend its emergency credit facility to a potential Northern Rock suitor.Initially, the Bank refused to extend its emergency credit facility to a potential Northern Rock suitor.
But even after relaxing this stance, many believe the rate of interest at which this facility is being offered - some say about 7% - is too punitive to be attractive to a buyer.But even after relaxing this stance, many believe the rate of interest at which this facility is being offered - some say about 7% - is too punitive to be attractive to a buyer.
BBC Business Editor Robert Peston said: "Top British bankers - who met the FSA again yesterday - are sickened that their industry, the very heart of the economy, should have been tarnished by those pictures of anxious depositors scrambling to withdraw funds."BBC Business Editor Robert Peston said: "Top British bankers - who met the FSA again yesterday - are sickened that their industry, the very heart of the economy, should have been tarnished by those pictures of anxious depositors scrambling to withdraw funds."
Recovery?
On Tuesday, Northern Rock shares had recovered some ground, ending up 8%, after Chancellor Alistair Darling pledged the Bank of England would guarantee all existing deposits to "promote a stable banking system".
History of Northern Rock How the government would honour its promise to Northern Rock savers
The move eliminated the queues outside most Northern Rock branches and the bank said that eight out of 10 people calling the bank inquired about returning money to their account.
Northern Rock had placed full-page adverts in Tuesday's newspapers, promising deposits were "totally secure during the current instability in the financial markets" and it was open for business "as usual".
The move came after three days of long queues at branches up and down the country as customers withdrew more than £2bn of their money - about 8% of Northern Rock's total deposits.