Why did the UK Government bail Northern Rock out? Doesn’t this set a bad precedent to other banks?

Question

Why did the UK Government bail Northern Rock out? Doesn’t this set a bad precedent to other banks?

Answer 1

A tory voter / party member?

No it does not set any bad example, the fact of the matter many people's houses were at risk..  IT IS ALSO A LOAN.

Answer 2

Banking is basically a confidence trick. If everyone tries to withdraw their money from a bank at the same time (a "run on the bank"), there won't actually be enough to go around.

If one bank fails, people will get nervous and take their money out of other banks. This could bring the other banks down. So it's vital to keep public confidence in the banking system.

So the Bank of England had to rescue Northern Rock, or risk a general banking collapse. It was a case of choosing the lesser of two evils.

A new system is being set up whereby UK banks will be more closely supervised in future. About time too, after BCCI, Barings and Northern Crock.

Answer 3

Because this crisis, started on USA, was spreading through all the World.Many UK Banks were on the verge of bankruptcy, there was a Bank run looming in England.

The same will happen in Spain and Ireland.

Its another sign of the agony of Capitalism.

Our forecast was correct,Capitalism rebuilding in China was going to fuel crisis , economic and political , on Imperialist countries.Even European Union " unity" is on danger.The last vote "NO" on Ireland shows it.

We love all this mess.Dont cry for me Argent.. Ooops ! Dont cry for me UK, USA,  France, Germany, Italy,etc...

aaaaaaaaahahahaha!

http://digg.com/business_finance/UK_Bank...

About how crisis looms in Spain

http://www.telegraph.co.uk/money/main.jh...

Answer 4

I went along with Mervyn King on this one. Let the bu--ers go into Liquidation. It would prevent moral hazard and it would teach the Banks an essential lesson. Savers would have to be protected in accordance with the scheme that was already in place. It would probably have taken years to liquidate, because there would have been a lot of mortgages to find new lenders for. I am simply keen for them not to get away with it.

Fundamentally, it was really a failure by the regulatory authorities to intervene at an earlier stage. Brown had already tinkered with the BOE powers and passed some of them to the useless FSA and the Treasury. A recipe for the disaster which eventually happened.

Answer 5

Yes, it encourages more risky behaviour by banks if they know that they will be bailed out by the lender of last resort should things turn nasty, but on the other hand, it wouldn't be fair on the many depositors and savers who have poured their life savings into the bank.

It is also a psychological 'consumer confidence' thing and they couldn't just let a high street bank go under.