A few days ago here in the UK, a bank called Northern Rock needed to secure a loan from the Bank of England. From what I understand, they needed to do this not because they needed the money, but instead due the credit crunch in the US and the fact that they were having problems selling their debt to someone else. I don't really get this whole thing to begin with. The fact that banks spend so much time and effort to sell their loans to someone else seems kinda' wrong to me, but hey, what do I know.
Anyway, it seems that because they couldn't sell their debt to someone else, they needed to borrow money. Because they needed to borrow money, they became a bad stock risk and their share price started to drop. Because their share price started to drop, people started to worry about the bank closing. And it something like the first 24 hours, regular folks withdrew more then £1 billion. That's regular folks withdrawing their retirement savings and their checking accounts to the tune of £1 billion -- in the first 24 hours. Lots of pictures in the media of long lines at the banks, while people wait to take out their money before the bank closes and goes out of business. It looked like the runs on banks we had during the Great Depression.
UPDATE:
According to the news here this morning, customers have now taken £1.5 out of Northern Rock, the bank is looking for a buyer and analysts are suggesting they could see half of their £113 billion taken out before it's all over.
It does beg the question as to how much loyalty Northern Rock created with it's customers before this all began. Too many brands use a crisis as the first real time they reach out to say "Hey, we're here for you. Help us get though this and we'll be there for you when it's all over." But when the crisis is over, they go back to business as usual. Do you think they'll offer to drop the interest rates on their mortgages for people who leave their money where it is? Or will they send your nasty notes when you're a day late with your mortgage payment?
You know, since I started reading about all of this, I can't help but think about Jimmy Stewert and the Bailey Savings & Loan. I can just picture him stuttering as he asks people to leave their money in the bank because it'll be safe. Trust me, he says. I live here too and I'll take care of you.
They're not buying that story here in England this week.
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