The Bank of England backs a national bank as lender of last resort. Within a day of the announcement, Northern Rock customers flocked to their local branches. The great panic had begun. Assurances by the Chancellor of the Exchequer, various officials from the Bank of England, and the CEO of Northern Rock had little impact
The queues continue to grow
To be sure, the company has not helped itself, as a drama turned into a crisis. The cardinal rule under these circumstances is to find some way of making specific information available as rapidly as possible. Instead, the Bank was unable to deal with the technical problems following the crash of its website (presumably through sheer weight of attempted traffic).
Timeline of a crisis
Friday September 14th 2007. Radio and TV media throughout the day showed the growing queues outside selected branch offices. Nervous depositors and mortgage holders were interviewed. The beautiful impartiality of the media shone through the reports. Or was it the icy heartlessness which Graham Greene considered was the characteristic of the creative temperament? It’s an old debate.
The emergency lending facility to Northern Rock was agreed by Mr Darling, on advice from Mervyn King, governor of the Bank of England. Northern Rock chief executive Adam Applegarth said that it had not yet borrowed any of the “unlimited” funds available… [The Chancellor, Mr Darling] said that “in order to create a stable banking system, the Bank [of England] steps in and it makes facilities available to the Northern Rock.” .. Angela Knight, chief executive of the British Bankers’ Association, said that anybody who was “either a saver with Northern Rock or has got a mortgage… can be absolutely confident that they have got their money with or they have borrowed from a very sound financial institution.”
All the calming words did not stop some Northern Rock customers [attempting] to move some or all of their money to accounts with other banks.
Saturday 15th September.
Media reports concentrate on the big story. Big queues. Panic. Anxiety No ice in the heart from the customers. I imagined they would be mostly the inadequates and mostly poor and uninformed people. Confused casualties. Instead I heard interviews with articulate pensioners. Young house-holders. A university lecturer. Recently retired business people. (What sort of business?). Many had come with friend or family support. Some had knowledge of the likely downside to their investments. Maximum £900 from over £30,000. One was intending to retrieve £10. Others talked of £100,000. Taken collectively, these groups far from matched my stupidly simplistic expectations. These worried lines of people had more financial resources than you might expect from a queue of people to be found at a post office each week on ‘benefits day’. Was it time, too, for me to revise a long-held image of ‘ordinary people’ flocking to their banks in the financial crash in 1929?
This seems an example of mild hysteria to be witnessed at airports as crowds build up around desks, seeking information during a flight delay. I recognised the ‘nobody seems to know anything. They won’t tell you anything. I don’t believe what I’ve been told, anyway. They [the ‘they’ of possible mightmares] can’t ever be trusted. Politicians. Bankers. Airlines’.
The BBC treatment has been clumsy. Not so much ice in the heart, as unthinking. Northern Rock customers (those who were not queueing) were being advised to go to the BBC website. Where they would find the main report asking what if Northern Rock goes bust.
There was excellent information (as there generally is) to be obtained. That’s why I like the BBC coverage of national stories. But its efforts to become both more commercial and demonstrate its independence are regularly less than impressive. An earlier piece entitled Market Jitters and your pocket was also on offer
The piece on Financial Jitters: Lessons from History was informative about that Mother of Financial Crashes in 1929. Tucked away in that report was the steps taken internationally to avoid such an event happening again. The piece quite rightly pointed out that nothing is certain in life, and any deposits are theoretically vulnerable.
Overall, the Northern Rock customers who failed to get information on the corporate website seem to have remained in a state of high anxiety.
What sort of leadership are we observing here? Adam Applegarth was widely regarded as a skilful leader in Northern Rock’s transformation from a little Building Society into an international bank. He pioneered an imaginative business model which was in tune with clever notions of slicing and dicing investments and loan risks. Admiring enthusiasts of the mathematics of derivatives have been particularly impressed.
His experience in working his way up to the top of the organization suggests ability, energy and intelligence. In hindsight it is easy to suggest that the company was still not too far away from the management skills of a much smaller institution. Cynics tends to warn against investment in swanky new headquarters of the kind Northern Rock is building. And what to make of the unusual skills for a chairman, Dr Matt Ridley, better-known as a journalist and popular science writer on socio-biology (unkindly sometimes described as stone-age economics)?
Or a company committing a proportion of profits to charity through its own charitable foundation. Quirky and admirable maybe. Or too clever by half, and undone by market circumstances?