Reportedly, the government, in consultation with the Financial Services Authority (FSA), has completed a review of the retail savings guarantee, and has concluded that the guarantee can be released subject to the relevant notice period for customers.
It reflects Northern Rock’s good progress and, strong capital and liquidity position. It also ensures that Northern Rock can compete on the same terms as other banks and building societies.
The guarantee has been in place since September 2007, when Northern Rock became one of the first major casualties of the credit crunch and was forced to turn to the government for funding, sparking a run on the bank.
Northern Rock said that, following the release of the guarantee, customers with variable rate accounts will continue to be covered under the Financial Services Compensation Scheme (FSCS) which provides protection up to GBP50,000 per person, the same as for other banks and building societies. Hence releasing the extra guarantee is not expected to bring in any significant changes to Northern Rock’s roughly GBP19bn in retail savings.
Paul Myners, financial services secretary to the Treasury, said: “The government’s actions to stabilise Northern Rock protected the savings of millions of families and the jobs of thousands of workers. The guarantee of retail deposits was a vital step that restored confidence in Northern Rock’s operations when its customers were worried about its soundness.
“Over the last two years, we have worked to get the bank back to financial health. We have taken a number of important steps, most recently to divide the bank into a retail business that will be sold back to the private sector in due course, and an asset management company that will remain in government ownership. Our goal is to see the taxpayer get a good return on its investment in the bank and for Northern Rock to focus on providing an excellent service to its customers.”
Gary Hoffman, CEO of Northern Rock, said: “We welcome the Government’s decision to release the savings guarantee, following an appropriate period of notice for our customers. The guarantee remains in place until 24 May 2010 for customers with variable rate accounts, and fixed rate accounts are guaranteed until the end of the term, whatever that may be – possibly one, two, or more years.
“This is another positive step in the right direction and the decision reflects our good progress and the strong capital position of Northern Rock. The Company is returning to a level playing field and our savers will enjoy exactly the same level of protection, under FSCS, as customers of other UK banks and building societies.”
