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Bank may have spent £3bn on Rock prop

The Bank of England may have supported Northern Rock to the value of £2.9bn through its lender of last-resort facility, according to New Star economist Simon Ward.

He says the Bank of England’s weekly balance sheets give an insight into the support offered to the bank.

Ward points out that the BoE’s balance sheet has expanded by 13 per cent in the last week as a result of its intervention to stabilise the banking system.

The BoE’s weekly bank return shows that total assets stood at £95bn on September 19, a rise of £11.3bn from the week before. Ward says: “£8.4bn of this increase represented stepped-up operations to supply market liquidity. The remaining £2.9bn occurred in the ‘other assets’ category and may represent the bank’s lender of last-resort support to Northern Rock.”

He says the Bank of England’s latest annual report shows its equity shareholders’ funds stood at £1.9bn in February.

John Charcol senior technical manager Ray Boulger says: “This figure does not seem an unreasonable amount, considering the number of withdrawals, although it is very hard to be exact about these things.

“The support is likely to have happened on Monday, as Northern Rock said on the Friday that it had not used the facility and by Monday it would have suffered more from weekend and postal withdrawals.”

Northern Rock’s shares are continuing to see frantic trading activity. Hedge fund RAB Capital last week bought a 6 per cent stake in the bank. Retail investors have also been snapping up shares.

Stockbroker The Share Centre says it has seen a 591 per cent increase in new accounts being opened last week compared with the previous week and says 34 per cent of all trades through its website were Northern Rock shares last Wednesday.

The Bank of England refuses to comment on Ward’s figures.


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