Fears that a crisis would spread throughout the financial system were behind the Government's dramatic intervention to guarantee Northern Rock customers they would not lose a penny. By mid-afternoon yesterday, Gordon Brown and his Chancellor, Alistair Darling, agreed that more clarity and certainty was needed to prevent the problems at Northern Rock afflicting other banks and building societies.
Discussions were under way before the collapse of Alliance & Leicester's share price but that underlined the need for urgent action. Privately, ministers hope the Government's move will make it easier for Northern Rock to be taken over, bringing a worrying chapter to an end. There were frantic behind-the-scenes negotiations yesterday involving the Treasury, the Bank of England and Financial Services Authority, of which the Prime Minister was kept fully informed.
Ministers insisted that their goal was to restore confidence in the financial system. But they knew that if a contagion spread through the system, the Government might struggle to escape the blame. It could have been a financial equivalent of foot-and-mouth disease or even Labour's Black Wednesday.
Ministers say Britain has weathered other storms since Labour came to power in 1997 and will survive this one. But they will be watching anxiously this morning to see whether the queues outside Northern Rock branches have gone away.Reuse content