Director debit: Northern Rock's board has been portrayed as the villain of the piece, but it's unfair to blame it for everything and accuse it of immorality, writes Ruth Prickett, If anything, it was guilty of underestimating the media's ability to whip up a panic.
| Author | Prickett, Ruth |
| Position | United Kingdom. Bank of England - Viewpoint essay |
I may be alone here, but I found myself feeling sorry for Adam Applegarth, CEO of Northern Rock, as he repeatedly told reporters that the bank's customers wouldn't lose any money. Why were people so willing to equate Northern Rock's acceptance of a Bank of England (BoE) loan to imminent penury?
The British may be renowned for their love of queuing, but it would take a lot to make me stand in line overnight for anything. Those queuing eventually got what they wanted, withdrawing sums running into hundreds of thousands. I'd have expected more faith in the UK's financial system. Surely, the fact that the BoE deemed Northern Rock worthy of the loan should have suggested that their savings were safer than they'd been on the day before the deal was agreed?
There has been much debate on whether the crisis was caused by the way in which Northern Rock broke the news. Maybe it could have done it better. Maybe the queuers all had a good understanding of its exposure to the US sub-prime mortgage market and had made more accurate calculations about the bank's solvency than the BoE had done. Maybe they had nothing better to do in the early hours of a September morning.
But I can't help feeling that the media did them no favours. Within a few hours of the announcement that accounts were being closed, the BBC's web site ran a poll asking: "Northern Rock--are you worried?" If people weren't worried before they read that, they would have been afterwards. Item after item on the radio and TV featured queueing customers telling reporters how dire the situation was and that "'they' ought to do something about it". Most of them admitted they were withdrawing their money because everyone else was. It was a classic panic--no different from people hoarding sugar because someone had said that there might be a shortage.
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Politicians were no better, criticising the "fat cats" who'd jeopardised the life savings of hard-working voters. Some even compared the non-collapse of Northern Rock to the demise of the Farepak Christmas savings club. The people who probably had most to complain about were the shareholders, but few politicians had much to say about them.
Vince Cable, shadow chancellor for the Liberal Democrats, was quick to see a moral dimension. The bank's "near-collapse" was, he said, a product of "greed and reckless gambling by overpaid executives, lax, indulgent bank regulation and a complacent government. What will be done about those...
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