The move has been approved by the Chancellor of the Exchequer and was intended to stabilize Northern Rock’s position following the recent market turmoil that has led to a liquidity squeeze in the banking markets.
It is believed that Northern Rock asked for support from the Bank of England after it became clear that it would not be able to refinance obligations, including securities, that are due to mature in the near future, the Financial Times revealed.
Although other banks have also been affected by the liquidity squeeze, Northern Rock has been hit particularly hard as it has a much smaller deposit base than most of its peers.
According to the BBC, although the Bank of England loan was intended to reassure the lender’s customers that their money is safe, thousands have flocked to its branches and withdrawn around GBP2 billion since its appeal for funds was revealed.
