British Government Guarantees Deposits In Northern Wreck Update: Don't they have deposit insurance?

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With customers mobbing Northern Rock branches across the UK and the stock plummeting so fast that trading in the shares was briefly halted today, the British government moved to quell panic by issuing a statement that it would guarantee all deposits in the bank.
Chancellor of the Exchequer Alistair Darling said the guarantee was being made in conjunction with the UK's Financial Services Authority and the Bank of America.
"That is unequivocal, I've put the matter beyond doubt," he said. "People will be able to get their money back."
One question: if you are a Northern Rock depositor, why should you put yourself at risk of even a temporary delay in getting your funds out should the bank fail? Whatever the government says about guarantees, it's unlikely that the money will be as readily available from government as it would be from a sound financial institution. Why not withdraw and put your money some place with less trouble? We're sorry if those questions seem irresponsible but that's what we'd be asking ourselves if we had money in Northern Rock.
Update: Lots of readers have asked why the customers of Northern Rock would rush to get their savings out of the bank. Don't they have the equivalent of a the FDIC? Aren't bank deposits insured by a government agency?
The answer is that the UK doesn't insure bank deposits the way the US does. To begin with, the total amount covered by deposit insurance is much lower than the US, which insures up to $100,000 in deposits. Only thirty-five thousand pounds is covered by insurance for depositors in the UK.
More importantly, the UK employs an insurance practice called "co-insurance" which shifts part of the risk to depositors. After the first two-thousand pounds of savings, only 90% of each persons total claim on a failed bank is covered by insurance, even for amounts below the insurance cap. The move is intended to impose tougher market discipline on the banks and essentially requires that even small depositors assess the credit-worthiness of banks.
As UK regulators are discovering in recent days, however, small depositors may not always agree with regulators about the credit worthiness of a troubled bank. Would you risk 10% of your savings in Northern Rock?
British Will Guarantee Northern Rock Deposits [Wall Street Journal]

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