Rock changes tack on loans
NORTHERN Rock said it was to slow the pace at which it jettisoned borrowers as the government pumped more money into the ailing banking sector.
The move was originally part of the business plan agreed with the Government to meet European state aid rules.
But those leaving the Rock were putting massive pressure on the credit available at other banks.
Northern Rock, the first bank to be rescued by government, was recently revealed to be the most aggressive in shrinking its mortgage book.
The new strategy is part of a wider rescue package to save failing banks with a second bail-out in three months.
Chancellor Alistair Darling said: “The credit crunch means there is less money around to lend, we need to deal with that.”
Officials worked throughout the weekend to finalise the second bail-out in three months which is expected to see the Government increase its stake in the banks while underwriting up to £200bn of so-called “toxic assets”.
The Treasury had been looking at the proposals for some weeks after it became clear that the initial £37bn bail-out in October had failed to provide a sufficient platform for normal lending to resume.
However they were given added urgency by Friday’s dramatic stock market falls amid fears that the banks were set to reveal further massive write-downs in the forthcoming results season.
Prime Minister Gordon Brown said the measures were intended restore lending to businesses and households amid fears the shortage of credit is driving Britain deeper into recession.
“We know that the essential problem, that has been held back by what has been happening internationally over the last few months, is the resumption of lending and the expansion of lending,” he said.
“What we want to do is see businesses get the money that they need to be able to create jobs and secure investment for the future. What I want to see is people who are mortgage holders having access to mortgages at prices they can afford.”
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