Finance

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Britain to Nationalize Northern Rock Bank

February 20, 2008 09:23 AM
by findingDulcinea Staff
In its first nationalization of a company in three decades, the British government will take over a financially troubled mortgage lender.

30-Second Summary

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On Feb. 17, U.K. Finance Minister Alastair Darling announced plans to nationalize Northern Rock, Britain’s fifth-largest mortgage lender, and to authorize the takeover of any other banks failing within the next year.

 “The government has decided to bring forward legislation to bring Northern Rock into a temporary period of public ownership,” until adverse market conditions change and its finances are healthier, Darling said at a press conference.

The move is the first nationalization in Britain since the 1970s.

Northern Rock suffered heavy losses following the sub-prime mortgage crisis in the United States. Last September, the bank saw Britain’s first run on deposits in over a century.

Depositors flocked to withdraw savings after the Bank of England announced an emergency line of credit to keep Northern Rock afloat. Northern Rock CEO Adam Applegarth then predicted in The Sunday Telegraph “it would be a ‘long slog’ for the bank to remain independent.”

Both Northern Rock’s management and Sir Richard Branson’s Virgin Group had developed bids to take control of the troubled bank. The government rejected these as too costly and risky.

Critics say the nationalization is an embarrassing policy reversal for Labour Prime Minister Gordon Brown’s administration.

Anatoly Kaletsky wrote in the Times of London that the nationalization makes “a mockery of all the arguments Brown has vociferously advanced in Brussels against state subsidies and protectionism elsewhere in Europe.”

Headline Link: ‘British Government to Nationalize Northern Rock’

Background: ‘Crisis Deepens for Northern Rock’

Reactions: Parliament speaks out

Historical Context: Prior state bailout of banks and nationalization

Key Players: Ron Sandler

Opinion & Analysis: Observers take stock

Reference: Northern Rock

Related Topics: ‘Sub-prime Casualties who Should Have Known Better’

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