Julian Knight: There's no crisis - but those in the queue might not think so

Click to follow
The Independent Online

I can understand why large queues of people were outside branches of Northern Rock on Friday. They had just woken up to the news that the UK's eighth largest bank had become the first UK bank for more than 30 years to ask for an emergency loan from the Bank of England. That's enough to send any saver or borrower into a spin.

But there really is no need for Northern Rock borrowers and savers to panic. Apart from the rather delicious irony that Northern Rock – which has been fighting customers tooth and nail over bank penalty charges – now has its very own overdraft, the big news for those who bank there is that their money is safe. The bank is not about to fold and savers will still continue to receive interest on their accounts. As for borrowers – sorry, there is no get-out. You will still have to meet your repayments as normal.

In fact, the main risk that Northern Rock faces is if too many people withdraw their cash from its accounts, making it even harder for it to fund itself. But it would take a stampede of unprecedented levels to do that. In truth, if you're a Northern Rock customer, you shouldn't have to join the queue outside your local branch.

Northern Rock asked the Bank of England for a loan not because it is bust but because the current crisis gripping world credit markets had made it difficult for it to gather the money it needs to keep offering loans and mortgages. The bank raises a large proportion of the cash it lends by bundling up its loans and selling them on the market. This is a temporary loan to tide it over until, it hopes, a degree of normality returns to the market. In the meantime it may have to rein back its lending, and this will hit profits, but that does not fundamentally threaten the financial position of its savers or existing borrowers. The Bank of England was very specific on Thursday that it would not have made the loan had it seen any serious threat of the bank going to the wall.

But Northern Rock may not prove a one-off. If the credit crisis continues, you can bet that other banks will have to go cap in hand to the Bank of England. You may see queues outside more big high-street names before the year end.

As you'd expect, the banking industry has been falling over itself appealing for calm. The Chancellor of the Exchequer, Alistair Darling, pictured below, has been popping up on the television and radio right, left and centre, repeating the mantra that all is well.

But appeals for calm often bring about the exact opposite reaction. People are used to the idea that financial institutions – and politicians, for that matter – lie to them routinely, sometimes with disastrous results. With pensions mis-selling, split capital investment trusts and of course the Equitable Life scandal, the track record of the UK's financial services sector is simply dire. As for politicians, I have one word for you: Iraq.

The Financial Services Authority (FSA), with its focus on the need for banks and insurers to treat customers fairly, is trying to do something about the deficit of trust in the industry but it has its work cut out, and weeks like this, with talk of crisis loans and queues outside branches, are not going to make things any easier. But as I say, I can understand why people are queuing.