MercoPress. South Atlantic News Agency

UK Government guarantees bank deposits

“No panic” underlines Chancellor Darling

Ministers took dramatic action in an attempt to end the crisis at Northern Rock as Chancellor Alistair Darling announced the Government would guarantee all deposits with the bank.

Speaking at the Treasury after talks with US Treasury Secretary Henry Paulson, Mr Darling sought to reassure investors that the bank would remain solvent. But he added: "Should it be necessary, we, with the Bank of England, would put in place arrangements that would guarantee all the existing deposits in Northern Rock during the current instability in the financial markets." Savers queued at branches of mortgage lender Northern Rock for a third day as confidence continued to drain from financial markets. The panic among savers - who have reportedly withdrawn more than £2 billion from the bank - was echoed among investors as Northern Rock's shares tumbled more than 35%. The group's woes also sparked a sell-off among rival lenders Alliance & Leicester - down 31% - and Bradford & Bingley, which tumbled more than 15%. The wider FTSE 100 Index fell 106.5 points - or 1.7% - to 6182.8. The turmoil came as Tory leader David Cameron told a City of London audience that Chancellor Alistair Darling should make a "full and comprehensive statement" on the crisis and the Government's response. While the Opposition leader said a recall of Parliament would add to the "sense of alarm", he added: "The immediate priority must be to reassure people about the situation and the safety of their deposits." He warned that the stability of the economy was being put at risk due to the "mountain of debt" built up under Labour. Mr Darling insisted again that the UK economy as a whole was well placed to ride out the shockwaves from the credit crunch in money markets following the collapse of the US sub-prime mortgage market.