David Prosser: A test for Northern Rock

Click to follow
The Independent Online

Outlook: The signal yesterday from the Government that it intends to drop its 100 per cent guarantee of savers' deposits with Northern Rock may well presage an exodus of account holders to other banks and building societies.

Rock has benefited from its government backing, introduced to stabilise the panic about its future in 2008, at the expense of rival savings providers where savers are protected only up to a maximum loss of £50,000 under the Financial Services Compensation Scheme.

However, if ministers are really serious about selling off the nationalised bank, this is a step that must be taken first. A privately owned Rock could not be extended the benefit of a state guarantee for its savers. And the bank must be given some time, before a sale, to stand on its own two feet in order to prove that it can be run as a standalone going concern.

The outflows will certainly be interesting. Ever since nationalisation, Rock's rivals have complained that the bank has an unfair competitive edge thanks to its Government backing. Now we'll find out exactly what the guarantee was worth – and if Northern Rock really is a brand that has any future in its own right. Selling the bank will be one thing, making it prosper again quite another.