Brown pledges support as crisis eases

BRITISH Prime Minister Gordon Brown last night pledged his government was doing everything in its power to maintain economic stability amid signs that the immediate crisis over the troubled Northern Rock bank appeared to be easing.

The queues of worried investors waiting to withdraw their savings were sharply down on previous days after Chancellor Alistair Darling’s dramatic Monday night announcement that the Government would guarantee their deposits.

In his first public comments since the crisis broke last week, Mr Brown said: “Everything that can be done will be done and is being done to maintain the stability of the economy.

“We are an economy that will continue to grow, continue to create jobs, continue to have low inflation. Everything that has been put in place in the last two days is designed to ensure that.”

Earlier, the Financial Services Authority (FSA) said it was now looking at ways of strengthening the system of compensation for depositors in order to prevent any repeat of the catastrophic loss of confidence which hit Northern Rock.

On the markets, there was a recovery in banking stocks as the Bank of England announced a £4.4 billion cash injection to ease the pressure on lending rates between banks.

Shares in Alliance & Leicester, which plummeted by 31% on Monday night on a false rumour that it had applied to the Bank for emergency credit, recovered all their losses.

Northern Rock shares were also up on the day, although they have still not recovered from the losses of Friday and Monday. Most analysts believe that it will be bought up by a rival.

Mr Darling, who held talks yesterday with the Bank and the FSA to assess the situation, confirmed similar support would be offered to any other bank hit by the turmoil caused by the collapse of the subprime mortgage lending market in the United States.

Meanwhile the European Commission said they were keeping an eye on the British bailout of Northern Rock to ensure it did not breach state-aid rules.

Competition spokesman Jonathan Todd said the commission does not have a problem with emergency support for a bank when there is a risk of systemic collapse of the banking system but that this is limited to six months and any funds must be lent at commercial rates.