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Treasury sets limits to the safety zone around the Rock

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20/09/2007

The Treasury has set strict limits on the protection it has extended to savers’ accounts in Northern Rock.

The unlimited support it has offered to deposits covers accounts that were in existence up to midnight on Wednesday 19th September. Any new savings accounts opened after that time will not be covered.

“This guarantee covers future interest payments, movements of funds between existing accounts and new deposits into existing accounts,” said a Treasury spokesperson.

“Since it would be unfair to other banks and building societies, the arrangements would not cover any new accounts set up after 19th September.”

Northern Rock has guaranteed that any savers who panicked and withdrew their money could return it without penalty by 5th October. So far the bank has not had to use the overdraft extended by the Bank of England last week.

ED’S COMMENT

AS I WRITE Northern Rock’s share price is still in free fall despite the Government’s guarantees to its savers. Shares were changing hands at £1.99 this morning, a dismal comedown from the heady days of late winter when the price reached £12.51 in February. Still, it now looks as if that valuation was based on the shifting (and shifty) sands of the bank’s embroilment with incredibly risky bundles of debt and its over-reliance on short-term money borrowed on the markets. I realise that for many ordinary people this is all tricky stuff, but imagine you taking an enormous gamble on your next door neighbour’s mortgage. You’d be bloody mad to do anything like that, although it seems banks don’t play by our commonsense rules. As for the Rock’s savers themselves, 42-year-old Phil Hudson of Nottingham put it pithily: “I don’t give a toss about international money markets, short-term loans or any of that stuff. All I knew was that money I’ve worked for bloody hard and saved up over the past 26 years was threatened. if I’d have had to tunnel in and get it out I would have done. People like me are always shafted and there comes a time when enough is enough. I wouldn’t touch Northern Rock with a bargepole now and the fact none of its top brass has resigned says it all, doesn’t it?”

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