Queues of desperate savers waiting outside bank branches in the hope of rescuing their savings provided scenes whose like had not been seen in living memory. Five months later, the Government has finally accepted what had increasingly appeared inevitable. Northern Rock isto be nationalised forthwith. A Bill will be introduced in the Commons today to give the decision legislative effect.
It is easy, with the benefit of hindsight, to ask what took the Government so long. That this is the obvious question, however, does not make it either untimely or wrong. It was certainly the question Alistair Darling was most concerned to try to answer when he spoke from the Treasury yesterday. And his answer was clearly weighed with exceptional care. The considerations behind the nationalisation and the time it took, he said, were three: preserving financial stability, safeguarding depositors' money, and protecting the taxpayer.
Even if the explanations are accepted, however – and the first, at least, could be translated less altruistically as government self-interest – the whole process took an unconscionably long time. Having decided against a bail-out early on, the Government has ended up, half a year later, exactly where it started, with a large amount of taxpayers' money spent in the meantime.
We have clearly come a long way from the "moral hazard" argument that so troubled the Bank of England when Northern Rock's difficulties first surfaced. After rejecting bids for the bank on the grounds that the offers would disproportionately benefit the rescuers at the expense of taxpayers, the Chancellor had no choice but to nationalise. Northern Rock was judged – to use the term applied to the insolvent New York hedge fund LTCM a decade ago – just "too big to fail".
But Northern Rock was not only too big to fail. It was too significant to fail. Size was an issue, given the importance of the bank to the North-east, the particular demographic group that relied on the bank for loans, and the jobs that depended on its charitable foundation. But size was not everything. The first run on a British bank for a century had other implications, political as well as economic.
New Labour, under Tony Blair, had made much of its sound economic credentials, and the man held up as the steward of success was the Chancellor, Gordon Brown. He had scarcely realised his life's ambition of becoming Prime Minister when the whole glorious decade looked in danger of unravelling. For him, Northern Rock threatened at once political and personal consequences.
It was not only that shockwaves from the US sub-prime mortgage crisis had reached our shores, but that the extent to which our recent prosperity had been built on credit made us especially vulnerable. And, with so much of Britain's success synonymous with the City of London and reliant on financial services, the failure of a single bank jeopardised our international reputation, too. Northern Rock threatened to become a metaphor for the economy as a whole: over-dependent on house prices, leveraging, and easy money.
Nationalisation concludes a chapter in Northern Rock's fast-lived life, and probably – despite Mr Darling's insistence that public ownership will be temporary – spells its end as an independent business. It will not, however, end the woes of either the Chancellor or – more cruelly – the Prime Minister, who Mr Darling pointedly associated with yesterday's decision. From now on, it will be hard for Mr Brown to boast of Britain's economic success or its superiority as a financial centre without someone glimpsing the sharp contours of Northern Rock behind him.