Friday, September 14, 2007

Bank offers emergency support to Northern Rock

The Bank of England has offered an emergency loan to Northern Rock after the mortgage lender became the biggest British casualty of the credit squeeze sparked by the crisis in the U.S. subprime mortgage market.

The central bank's support -- the first time it has acted as lender of last resort in this way since becoming independent on interest rate policy in 1997 -- puts a prop under Northern Rock, which has been hit by a spike in the cost of borrowing from other banks as they become increasingly reluctant to lend.

The government said on Friday it had authorised the Bank to provide an unspecified amount of liquidity to Northern Rock, the country's eighth-largest listed bank, which had the biggest share of the new mortgage market in the first half of this year.

The Bank, which has come under fire from some financial institutions for its hands-off response to market turmoil, said Northern Rock was solvent and only in need of short-term help.

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