Speaking at a press conference this afternoon, Chancellor Alistair Darling said he had agreed with Bank of England governor Mervyn King and FSA chairman Callum McCarthy to put in place measures to guarantee all deposit accounts should the need arise.
Darling highlighted statements made by the FSA over the weekend confirming the firm is solvent and has a sound long term loan book despite its short term liquidity problems.
The highly unusual move is designed to stop the panic that has set in over the past three days with people queuing all day to retrieve their deposits.
Darling confirmed these measures would apply if another firm found itself in the same position.
Darling said: “Should it be necessary, we, with the Bank of England, would put in place arrangements that would guarantee all the existing deposits in Northern Rock during the current instability in the financial markets.
“This means that people can continue to take their money out of Northern Rock. But if they choose to leave their money in Northern Rock, it will be guaranteed safe and secure.”
Elsewhere, Alliance & Leicester’s share price tumbled 32 per cent although the lender says it is not under an FSA investigation.
Northern Rock released a statement this evening saying: “There has been considerable speculation in the media over recent days regarding the possibility of a transaction with another party. Northern Rock is not in discussion with any other party at the present time, however the Board is aware of its fiduciary duty and is actively considering all strategic options in the interests of shareholders, customers and other stakeholders.
“The Chancellor’s statement makes it clear beyond any doubt that all savings in Northern Rock are safe and secure. Consequently anybody who is in a queue outside a branch, or who is trying to access an online account can be fully reassured that there is no cause for concern whatsoever.”