Britain's Labour government Tuesday agreed to extend its guarantee to all customer deposits held at Northern Rock as the British bank severely hit by the global credit squeeze awaits being taken over.
The extension came as the Bank of England begins the process of offering 11.35 billion pounds (15.93 billion euros, 22.92 billion dollars) to financial institutions as part of a move announced last week by world central banks to ward off the effects of the credit squeeze.
In recent months, commercial banks have become nervous about lending cash to each other amid fears over exposure to the US housing market slump. Troubled mortgage lender Northern Rock was plunged into crisis in mid-September when it was forced to seek emergency help from the Bank of England. The news sent customers rushing to withdraw their savings, producing the first run on a British bank in living memory.
The clamour died down only after a British government pledge to protect existing deposits at the bank. Tuesday's savings extension, announced by the Treasury via a statement, was designed to attract new deposits at Northern Rock, thereby reducing the group's reliance on emergency BoE borrowing.
Meanwhile it was reported Tuesday that Britain's government is considering a plan to divide Northern Rock among commercial banks. It is one of several options aimed at rescuing the organisation, which also include a private sale of the bank or nationalisation, The Guardian daily said.
A consortium, led by Virgin Group, and British investment group Olivant have confirmed they are vying to take over Northern Rock but there has been increasing speculation the government may have to step in directly.