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Last night Alastair Darling, the UK Chancellor, guaranteed 100% of savings in Northern Rock – and indeed the Financial Services Authority has since gone further, stating this guarantee extends to other troubled financial institutions that might emerge in coming days.
Given the scenes we’ve witnessed since Thursday’s news that Northern Rock required a lifeline from the Bank of England, many will think it’s a good move. And sure, the decision will probably quieten the recent financial upheavals. It will certainly get the government off the hook for now (and to be clear, I don’t believe the government was responsible for the problems in the first place).
But it is without precedent in the UK, and has potentially serious consequences that sound academic but which in extreme cases have previously led to unpleasant upheavals of the blood and barricades variety. What’s worse, the guarantee has for now come without any balancing regulation to ensure the banks do not abuse the facility for their own ends.
At the very least then, a move designed to bring short term confidence to the UK banking system will prove embarrassing for years to come, with consequences for all of us in Britain who save, borrow and spend. Everyone, in other words.
