Northern Rock - Not difficult to sympathise with people

DESPITE all the high-level assurances about the security of their funds it is not difficult to have sympathy with the fretful people queuing outside Northern Rock branches.

How many of us would have the composure to accept the promises that all is well and that our savings are secure?

That these assurances come from the very highest level of the British financial and banking systems should be cause for optimism. It is reasonable to expect that deposits held by a bank approved by the relevant authorities are safe.

Even the slightest hint of jeopardy will cause depositors to move funds.

It is reassuring then that all of the depositors seeking to withdraw their funds from Northern Rock are getting their money.

This shows that the system works and should sustain confidence in procedures. This confidence is absolutely vital to the continued wellbeing of our economy.

This was alluded to yesterday by the Taoiseach when, at the Fianna Fáil parliamentary party conference in Wicklow, he insisted that there was no place for pessimism on the economy.

He has persistently criticised the “naysayers” whose economic predictions are pessimistic, saying that our fundamentals are strong and that we encourage self-sustaining prophecies if we talk up the difficulties we face in a quickly changing world economy.

The Taoiseach’s message may be tempered by suggestions from Alan Greenspan, the former head of America’s central bank, the Federal Reserve, that he anticipates a severe drop — as much as double figures in some instances — in house prices in America and Britain. This would be catastrophic here as the building sector and the financial services attached to it have become absolutely central to our economy.

The Taoiseach’s optimism was also tested by yesterday’s performance of the Irish Stock Exchange where values fell by about 4%.

A further increase in mortgage rates is also on the cards, though it will not be brought about by the European Central Bank but rather the liquidity crisis provoked by the sub prime difficulties faced by American banks.

These worries are compounded by the news that the world’s investment banks are to reveal a €21 billion hit from bad debts as they unveil results that outline the real impact of the global debt crisis.

Analysts suggest that banks will have to write down as much as 10% of the € million leveraged loans currently agreed but not yet syndicated when third quarter results are made known.