Northern Rock: One year on

Today marks 365 days since Northern Rock turned to the Bank of England for an emergency loan, irrevocably altering the banking sector.

"A severe liquidity squeeze" was blamed as the mortgage lender was forced to call on the central bank to act as lender of last resort.

That Friday – amid the clement weather – queues started to form as customers wanted their money back.

Chancellor Alistair Darling urged people not to panic, but customers were already waking up at the crack of dawn as branches opened early to deal with the demand.

One year on, Northern Rock is now owned by the government and paying off a £27 billion loan to the Bank of England which is expected to be return in full by 2010, when it will start to be profitable again.

A year on from the crisis, the UK financial world has changed. Savers now find they have greater protection for their savings if a bank ever goes to the wall.

Last year, customers could only claim 100 per cent cover for savings up to £2,000 and 90 per cent of savings up to £35,000 if a bank went bust. Now 100 per cent of the first £35,000 held is protected under the Financial Services Compensation Scheme.

But confidence has been rocked in banking.

It can be argued the fall of Northern Rock has left us all losers. Since then – although not wholly because of the crash – mortgage lending is half what it was and the housing market, which was expected to stagnate, is in freefall.

Rock shareholders, mortgage holders, workers and the taxpayer emerged as the biggest losers from the episode.

Current plans state Northern Rock is to pay off its debt to the government by 2010 and then after that point return to profitability.

At that point, the government will start to look for a buyer, as it tries to fulfil its promises to make a profit on the deal. However, a new government may shake up any plans.

Northern Rock brought down confidence in finances, but a year later we are seeing signs our finances are moving to put foundations on rock not sand.

Just as before the crash of 1929, people lost their heads over what the value of investments were, so to did the markets of 2007. A year later we are all older and wiser, but some lessons are easy to forget.