Banks don't usually collapse, it takes an awful lot to bring down a bank.
With Northern Rock, it was never near collapse, it was a lot of hype by the papers as it made a good story, and the british public fell for it.
What happened with Northern Rock is that banks routinely lend money to each other, its a standard thing that all banks do, and it keeps the economy going. However, in america with rising interest rates, lots of people are defaulting on their mortgages. Banks have packages of loans, with secure loans and insecure loans all lumped together. As a result, with many people defaulting in the US, the banks didn't know exactly how much they were going to lose. This caused a small amount of panic, and to make sure they had enough money to cover losses, the banks stopped lending to each other.
This didn't affect most banks because they have a steady stream of money coming in from savers, so they still have money to lend out. However, Northern Rock dealt mainly with mortgages so didn't have so much cash going in through savings accounts.
They were never going to collapse however, but the papers got wind of it, and blew it up out of all proportion. The public believed the hype and over reacted, with mass panic and started withdrawing all their savings. The papers published pictures of people queueing to take out their money, and this scared more people into withdrawing their cash.
This lead to it becoming a self fullfilling prophecy, with everyone withdrawing their savings, it did actually put Northern Rock into a bad position. Banks don't actually keep all your money in a vault somewhere for you, they lend it out to other people at a higher interest rate to make money from it. As a result, if everyone tries to take their money out at once, it causes major problems, as the money is not in the branches.
Since that happened, although 90% of peoples money was guaranteed by the government up to £32,000, now all money is guaranteed. So, if a bank collapses your savings will be safe.
This guarantee means that hopefully the situation won't happen again, as people will have no need to withdraw their money, as there is no risk of them losing anything.
I think people have also learnt not to believe what the papers say when it comes to similar situations!
Many people actually lost out believe it or not, as Northern Rock were offering good interest rates on savings, and lots of people needlessly withdrew their money and put it in savings accounts with other banks, which had a lower interest rate.
I await this answer with interest
CLAIMBAN, You have got your facts wrong," ONLY NORTHERN ROCK have that safegaurd regarding security of their savings and to the rest it is still only £32,000. untill the law is changed next year
