Self-Fulfilling Disaster

The bank run on Britain's Northern Rock has not slackened according to media reports. Despite assurances that depositors will get their money, people are still lining up to get their money out. There are now fears that there could be a general bank panic. The problem with these sorts of panics is that they tend to snowball and becoming self-fulfilling.

Britain was today plunged into its worst banking crisis in living memory.

Northern Rock was pushed to the brink of extinction by savers withdrawing their money amid fears that the panic could spread to other banks.

Chancellor Alistair Darling admitted his job was on the line as the share prices of high street banks fell heavily.

Bank of England Governor Mervyn King came under fire as shares in Northern Rock, Britain's fifth biggest mortgage lender, fell 38.3 per cent.

Former building societies such as Alliance and Leicester and Bradford & Bingley were also hit. Northern Rock customers have withdrawn more than £2 billion since Friday's admission that it needed emergency funds from the Bank of England.

The only prospect of it surviving is if another bank comes to its rescue but none was on the horizon today.

Mr Darling tried to restore confidence by insisting that all Northern Rock savers would get their money. But asked if his own reputation was "on the line", he replied: "It is, I'm afraid, yes."

Tory leader David Cameron said Gordon Brown's reputation for prudence was now in question. Leading financial analyst

Mark Dampier said of Northern Rock: "The whole thing has gone. Nobody can trust the company's board now."

It comes as Mortgage lenders have been ordered to prove they are solvent amid fears of a Northern Rock domino effect.

Frankly, the press isn't helping a lot right at the moment. They are playing up the worst case and not trying to emphasize that the government is not letting the bank fail. The Telegraph is reporting that there were only about 200 people lined up outside bank branches in London - so playing it up as worse than it is isn't a good thing.