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How internet banking wrecked the Rock

Research by you.gov suggests that the growth of internet banking and the failure to effectively manage Northern Rock’s website were primary factors in the development of the run on the bank – that is, once BBC business editor Robert Peston had reported that it had applied for emergency financial support from the Bank of England.

The report states: “The absence of official communications once the leak had occurred shows how those responsible for managing major corporations and for their regulation can be caught on the back foot. The failure of the tripartite authorities to co-ordinate communications with consumers at speed is also apparent.”

Apparently, it was this absence of information that sent NR’s customers to the internet, rather than just their desire to withdraw money.

The report continues: “The impression portrayed by the media was that, on finding out about the problems facing NR, the vast majority of savers panicked and attempted to withdraw all or some of their savings.

“While there is evidence that large numbers of savers did seek to withdraw some savings, in fact the reaction of most when they first heard of the problems was different from that portrayed by the BBC and others.”

It states that half of all savers said that, initially, they did nothing in particular, while 21% tried to access the NR website and 12% attempted to get information from another website.

The authors say that in addition to the 21% who did try the NR website, a further 10% would have done so but they had heard it was down.

Furthermore, only 20% of those who tried to gain access intended to withdraw funds – far less than the 50% of savers who subsequently went on to make withdrawals.

On this subject, the report continues: “The others were seeking some form of reassurance, with 58% claiming they wished to access the website to find out whether the bank was stable and secure and a further 18% saying they were seeking general information.”

Even among research respondents who used online banking to manage their savings accounts, the proportion intending to withdraw funds at that time was only 24%.

The authors conclude that their results support the hypothesis that a lack of official information about the stability of NR was a critical factor in leading to the run on the bank.

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