‘My dear Mr Clennam,’ returned Ferdinand, laughing, ‘have you really such a verdant hope? The next man who has as large a capacity and as genuine a taste for swindling, will succeed as well. Pardon me, but I think you really have no idea how the human bees will swarm to the beating of any old tin kettle; in that fact lies the complete manual of governing them. When they can be got to believe that the kettle is made of the precious metals, in that fact lies the whole power of men like our late lamented.
Ferdinand Barnacle (Little Dorrit, by Charles Dickens)

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.

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As I write, people are queuing outside a major British lender, Northern Rock, to take all their money out. Only in Britain would a run on a bank see customers forming an orderly line from the back.

Reading comments in the press, it’s clearly something that many people never expected to see in their lifetimes. Certainly, frightened customers demanding their money from a bank they fear is going bust is a scene you’d more expect to see in black-and-white images from the 1930s rather than on the Six O’Clock News on a flatscreen TV. But that never meant it couldn’t happen.

Indeed, the belief that instability and crisis is something that only ever occurred in some unreal yesterday is exactly why financial markets turn in cycles (if you wait long enough) and crises repeat themselves (if you read back enough).

Is it blind panic to take your money out of Northern Rock? Not necessarily. Perhaps many Northern Rock savers are panicking, but taking your money out is also a perfectly rational choice.

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