My Peep At Life…

September 18, 2007

Emotion drives Northern Rock PR nightmare

Filed under: Finance — peepingtom @ 2:52 PM
Northern Rock Issues

It’s hard not to notice the issues surrounding Northern Rock at the moment. I think that the media has done a wonderful job of fueling the panic surrounding the bank’s financial situation, and done nothing to explain the actual situation.

Northern Rock was making a proactive move to ensure it had access to cash by setting up an overdraft with the Bank of England. It didn’t actually use it, it just set it up. This is due to a lack of cash in the financial institution world due to the dry up of money in the US around the property market.

Due to setting up this overdraft, the media was spectacular at implying that Northern Rock was having financial issues by not fully explaining what the actual issue was. As a result, customers who don’t understand panicked and want to withdraw their life savings. The media coverage of this event fueled more panicking, and even more customers wanted to withdraw their money.

To tackle the histeria, the Chancellor stated that the savings would be guaranteed so that no saver would lose their money. A bold move by any means. However, ironically, people are untrusting of the government, and still want to take out their money.

Now what happens if this happens to another financial institution? If it happens again, it will almost uncertainly trigger a nasty collapse of banks and share prices. I just hope it doesn’t!

To find out the truth behind Northern Rock, you can read about it on Money Saving Expert.

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