British bank panic spreads

LONDON -- Ignoring government assurances that their money was safe, hundreds of customers lined up outside branches of a British mortgage bank for a second day on Saturday to withdraw their savings.

Police had to be called in some cities to steer the panicked crowds away as Northern Rock bank branches closed for the day.

Fears have spread over the bank's request earlier in the week for an emergency Bank of England loan amid global financial turmoil.

Customers took 1 billion pounds from Northern Rock, Britain's fifth largest mortgage lender, on Friday, The Financial Times reported, citing an unidentified person described as close to the situation. The bank -- the first British bank in 15 years to be bailed out by regulators -- declined to confirm the figure, which represents 4 percent of its deposit base.

Treasury chief Alistair Darling and the country's Financial Service Authority tried to assure customers there was no doubt over Northern Rock's solvency and that there was no need to panic.

The authority "has reiterated yet again tonight that it is satisfied that Northern Rock is solvent, can carry on doing business and, crucially, paying out money if people want to withdraw their funds," Darling said on Saturday night.

But The Sunday Telegraph said Northern Rock was preparing itself for a sell-off. Citing unidentified sources, the paper said one plan would divide the bank's mortgage portfolio between other major banks in what would be a private-sector rescue of the lender.

Many people appeared to ignore Darling's message Saturday as lines stretched around the block at some of the bank's 76 branches in the U.K. and the bank extended opening hours to deal with the situation.

"Yes, we are making matters worse, but I do think people need some reassurance from Northern Rock and the government and financial services that their money is safe," account holder Jane Taylor told Sky News while waiting outside a branch in Kingston-upon-Thames, west of London.

But others said they had faith in the bank and financial authorities and watched the lines in disbelief.

"It's mostly, in my opinion, ignorance and that's why they're panicking," said another bank customer named Tom, who gave only his first name. "I'm leaving mine there."

Police were called to branches in Sheffield and Glasgow to help bank employees deal with the customers they turned away as the branches closed for the day. In Sheffield, an ambulance was called after an elderly woman in line appeared to faint.

In Manchester, branch manager Pauline Longstaff chose a gentle approach.

She handed out chocolates and personally reassured customers that they would be taken care of. Her staff also served fruit juice to the waiting customers, who -- like those waiting outside branches elsewhere -- were mostly elderly people concerned about their life savings.

Under Financial Services Compensation Scheme, deposits of up to 31,700 pounds are guaranteed should a bank default.

Although Northern Rock requested substantial emergency funds at a penalty rate, the bank has said it had billions of pounds in cash at its disposal. It has yet to draw on any emergency funding.

The bank made the request Thursday because it relies heavily on wholesale money markets for cash, and had been unable to borrow the amounts it required from other banks since the money markets choked up last month. That was caused in part by U.S. banks making mortgage loans to Americans with poor credit histories.

Ron Stout, a spokesman for Northern Rock, said on Saturday that reckless comments by some analysts about the bank's solvency had caused some customers to panic by lining up outside branches or straining the company's online banking system.

He said Northern Rock would continue to extend its banking hours, by opening one hour ahead of schedule on Monday, and to reassure customers that their investments are safe with the bank.