EU approves Britain’s Northern Rock bail-out

The British Treasury's decision on September 17 to guarantee all deposits held by Northern Rock 'can be authorized as rescue aid,' which 'must be given in the form of loans or guarantees lasting no more than six months,' a statement from the EU's executive, the Commission, said.

One of the Commission's key tasks is making sure that governments do not distort the EU's internal market by giving illegal aid to companies in their countries. Its verdict that the bail-out was legal is thus likely to be greeted with relief in London.

Recommended For You

Watch: Kuwait seizes over 100kg of narcotics hidden in car in foiled smuggling attempt

Dubai Exhibition Centre to have over 10,000 parking spaces, extensive transport options

India captain Shubman Gill will not take part in series against South Africa after neck spasm: BCCI

Dubai Airshow 2025: Over 1,200 security personnel, integrated plan ready, say police

Bin Ghadayer’s quiet confidence rewarded with impressive Jebel Ali Racecourse double

 

But the decision does not give Britain carte blanche to prop up the ailing lender in the longer term, the statement said.

'The approval of the rescue aid measures has no bearing on whether any future measures taken by the UK authorities to support a restructuring plan would be similarly approved,' it warned.

Northern Rock is the highest-profile British casualty to date of the collapse this summer of the US market for risky mortgages.

The bank, Britain's fifth-largest mortgage lender, built up a 101-billion-pound (208 billion dollars) business in recent years by largely financing its loans with funds borrowed on international markets.

That policy left it brutally exposed when international lenders reacted to the US mortgage crisis by tightening their own lending rules, cutting Northern Rock off from its key money supply.

As the crisis deepened, Northern Rock asked the Bank of England for emergency aid. On September 14 the Bank replied with an emergency loan meant to carry Northern Rock over the immediate problem.

But news of the loan sparked a panic among Northern Rock clients, who rushed to withdraw their savings from the bank.

As a result, on September 17 the British government intervened, saying that it would guarantee all existing Northern Rock accounts.