HM Treasury

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Northern Rock FAQ

24 February 2010

What does the removal of guarantees mean for Northern Rock plc?

This is another step towards independence for Northern Rock and it reflects the company’s good progress and strong capital and liquidity position. It also means that Northern Rock can compete on the same terms as other banks and building societies.

Why is the Government removing the retail deposit guarantees in Northern Rock?

The guarantee arrangements were always intended to be temporary – they were introduced in September 2007 to provide depositors with assurance during a time of unprecedented uncertainty and instability in financial markets. The restructure of Northern Rock, which came into effect on 1 January 2010, has resulted in the creation of a new bank, Northern Rock plc, which is strong, well capitalised and highly liquid. The Government, along with the Financial Services Authority, has now reviewed the situation and assessed that the guarantees are no longer required.

When do changes to the guarantees take effect?

The changes take effect from close of business (5pm) on 24 May 2010:

Going forward, all Northern Rock retail savers will continue to be covered by the Financial Services Compensation Scheme, which provides protection up to £50,000 per person, the same as for other banks and building societies.

A similar scheme in Guernsey provides protection up to £50,000 per person, for customers of licensed banks in Guernsey, and savers in Ireland will continue to be covered by a combination of the UK’s Financial Services Compensation Scheme (FSCS) which provides protection up to £50,000 per person and the Irish Deposit Guarantee Scheme, which covers up to €100,000 per person.

What is the Financial Services Compensation Scheme (FSCS)?

The FSCS is a scheme that protects retail depositors of all FSA-regulated banks and building societies in the UK. The Scheme provides cover of up to £50,000 per person. This means for a joint account held by two eligible depositors, the maximum amount of protection is £50,000 each or a total of £100,000. The FSCS can pay compensation to depositors if a bank is unable to meet its financial obligations. Further information about the Scheme and the level of cover provided is available on the FSCS website.

A similar scheme in Guernsey provides protection up to £50,000 per person, for customers of licensed banks in Guernsey, and savers in Ireland will continue to be covered by a combination of the UK’s Financial Services Compensation Scheme (FSCS) which provides protection up to £50,000 per person and the Irish Deposit Guarantee Scheme, which covers up to €100,000 per person.

Are the Government guarantees in addition to the protection provided by the FSCS?

From 5pm on 24 May 2010, only fixed term deposits in accounts that were existing at 8am on 24 February 2010 will be covered by Government guarantee. For these accounts, the guarantee will last until the fixed term deposit matures. These guarantee arrangements are in addition to any protection provided by the FSCS.

I am a Northern Rock customer- what do I have to do?

Northern Rock customers of Northern Rock plc, Northern Rock (Guernsey) and Northern Rock (Ireland) don’t need to do anything. There is no immediate change to the savings guarantee for existing accounts. You will shortly receive a letter from Northern Rock informing you of the details of the change and when the guarantee will be lifted. More detailed information regarding specific products can be found at the Northern Rock website.

I'm a retail depositor with Northern Rock in Guernsey, how does the announcement impact me?

Guarantees relating to retail deposits held by customers of Northern Rock Guernsey will be lifted on 24 May 2010, in line with Northern Rock's non-Guernsey retail accounts (see q3).

Retail deposits in Northern Rock (Guernsey) are not covered directly by HMT’s retail deposit guarantee arrangements. However, because Northern Rock (Guernsey) subsequently lends these deposits, along with other funds, to Northern Rock plc which does benefit from HMT guarantees, Guernsey retail deposits are indirectly guaranteed by HMT. To ensure that Guernsey depositors are treated on the same basis as those in the  UK, the Government is giving three months’ notice from 24 February 2010 to lift this indirect guarantee. Therefore, the specific Northern Rock plc guarantee applying to funds derived from Guernsey retail deposits and subsequently placed with Northern Rock plc by Northern Rock (Guernsey) will be lifted on 24 May.

What does this announcement mean for wholesale deposits in Northern Rock?

The announcement does not affect the status of wholesale deposit guarantees for Northern Rock, excluding certain wholesale arrangements covering amounts deposited to Northern Rock plc by Northern Rock (Guernsey) Limited.

Is my deposit in Northern Rock plc still safe?

Yes, Northern Rock plc is a well capitalised and highly liquid bank regulated by the FSA. Before making its decision to remove the guarantees the Government, in conjunction with the FSA, conducted a detailed review of the situation and has assessed that the guarantees are no longer required. Going forward, all Northern Rock plc retail savers will continue to be covered by the Financial Services Compensation Scheme which provides protection up to £50,000 per person, the same as for other banks and building societies. Customers of Northern Rock (Guernsey) will be covered by the Guernsey Banking Deposit Compensation Scheme, and customer of Northern Rock (Ireland) will be covered by a combination of the UK’s Financial Services Compensation Scheme (FSCS) and the Irish Deposit Guarantee Scheme.

Does this mean the Government is planning a sale of Northern Rock?

The Government intends to return Northern Rock to the private sector in due course, when the time is right and it can achieve value for money for the taxpayer. The Government does not believe it is in the public interest for it to operate banking services in the longer term. Returning Northern Rock to the private sector will increase competition in UK banking, bringing benefits for consumers.

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