The government’s unprecedented decision to guarantee every bank deposit in the country should be enough to stop the queues outside Northern Rock branches and any further meltdown in the financial system. However, no one has covered themselves in glory during this episode. Adam Applegarth, the chief executive of Northern Rock, has delivered a master class in how not to handle a crisis, The Bank of England and the Financial Services Authority have between them dropped the ball and the government has looked far from sure of itself. Indeed it is noticeable how despite Alistair Darling’s shaky performances, Gordon Brown has still kept away.
One of the many questions that remains to be resolved, as Daniel Finkelstein notes, is when will this government guarantee be formally lifted? To do so anytime soon would risk reigniting the panic but for it to carry on indefinitely would be to effectively nationalise the risk of a bank default.
Politically, this episode has damaged Labour’s reputation for economic competence. It is not a Black Wednesday moment but if Labour were to roll out its self-congratulatory economic posters at the next election they would now be met with hollow laughter.
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