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Economist comments on Northern Rock
Consumers lured back to nationalised bank Northern Rock have created a knock-on effect on rival banks, an economist has said.
Simon Ward at New Star Asset Management claimed that, where previously savers were withdrawing funds from the bank, a "reverse flow" is now occurring.
The increasing rate at which banks were willing to lend to each other last summer - otherwise known as the inter-bank rate - was a major factor in Northern Rock's subsequent near-collapse.
However, since the government took the bank over, Northern Rock has aggressively raised both savings and mortgage loans rates.
This has had the effect of lessening the number of customers borrowing with the bank - and increasing the number of savers.
Mr Ward observed that, rather than loaning this cash surplus back to rivals on the money markets, Northern Rock is using the funds to pay back the money it owes the government.
While the loan has now been reduced to £21 billion from a peak of £28 billion, this has also had the effect of keeping the inter-bank rate high - ironically, a major factor in the bank's near-collapse in the first place.
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