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Northern Rock guarantee to end

Irish investors' deposits in bank will be covered only up to €100,000 from May 24

Charlie Weston Personal Finance Editor

Published 25/02/2010 | 05:00

NORTHERN Rock, the British bank that suffered a run on deposits in September 2007 and was subsequently nationalised by the UK government, will no longer have a full guarantee for its deposits from the British exchequer.

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The bank has a large number of Irish savers. From May 24 next, their deposits will effectively be covered up to €100,000 under a combination of both the British and the Irish deposit-guarantee schemes.

Existing variable-rate deposit accounts will continue to be guaranteed until May.

Fixed-term deposits will retain the guarantee for the remaining term of the product. Therefore, a three-year fixed rate will be guaranteed until the three years are up.

However, the move to take away the 100pc British government guarantee will mean that the first £50,000 (€56,840) of any variable-rate deposit will fall under the British compensation scheme, with the rest of any money up to €100,000 guaranteed under the Irish deposit guaranteed scheme.

Northern Rock currently pays interest of 2.5pc on its demand-deposit account. This is an internet/postal-deposit account.

There was panic among Irish depositors in September 2007, when Northern Rock sought emergency funding from the British exchequer.

Shattered confidence

Customers queued for hours outside the bank's offices on Harcourt Street in Dublin.

Its customer system had also frozen up a number of times, such was the high level of traffic from people desperate to withdraw their money.

All those seeking to get their money out were paid but the run shattered confidence in the bank. The British government was forced to nationalise it five months later in February 2008.

In just a few days, more than €3bn in Irish customer deposits had been withdrawn.

The bank's financial problems had been caused by the eruption of the sub-prime mortgage crisis and the consequent squeeze on the international money markets.

Northern Rock had taken out full-page advertisements in national newspapers seeking to reassure investors that it was a well-managed company and would not "let down" its savers, but these failed to quell the panic among depositors.

This year, the bank was split into two parts to aid its eventual sale back to the private sector.

The UK Treasury said yesterday's announcement was a significant step towards restoring the independence of Northern Rock.

The bank's chief executive, Gary Hoffman, yesterday welcomed the move.

He said: "This is another positive step in the right direction and the decision reflects our good progress and the strong capital position of Northern Rock."

He added: "The decision reflects our good progress and the strong capital position of Northern Rock.

"The company is returning to a level playing field."

Irish Independent

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