Savers queue in run on Northern Rock

Thousands of savers have queued outside branches of Northern Rock to withdraw their money, after the bank was forced to ask the Bank of England for emergency support.

Long queues formed on 14 September, after it was confirmed that the Bank of England had agreed to provide the Newcastle-based lender with emergency funding. It is the first run on a British bank for well over a century.

What went wrong?

Northern Rock, a former building society, has grown rapidly to become one of Britain's biggest mortgage lenders. Unlike most banks, it relies heavily on borrowing money from other financial institutions, rather than on savers' deposits, to fund its lending.

When the credit crunch began in August, banks around the world became reluctant to lend to each other, amid fears about losses on American sub-prime mortgages. Northern Rock found itself unable to raise the money it needed.

Savers queue

Although the Bank of England stepped in, the news triggered panic among savers, who feared they would lose their money. Queues stretched out of branches across the country, including in Birmingham, and the bank's website crashed.

Under current rules, savings are only fully protected up to £2,000, with 90 per cent of the next £33,000 covered.

Government guarantee

The Chancellor, Alistair Darling, has since announced that the government will guarantee all existing deposits at Northern Rock, in an effort to end the panic.

The Governor of the Bank of England, Mervyn King, has faced criticism for not acting sooner. He had warned against rescuing banks that took excessive risks.

Shares fall

Shares in Northern Rock have fallen sharply, and there are concerns about the effect on other banks and on the housing market. Mortgage lenders are becoming more cautious about lending.

A wider crisis

The problems at Northern Rock are part of a wider crisis in financial markets that began in the United States, where many people who took out mortgages they could not afford have fallen behind on their payments.

Banks that bought investments based on those mortgages are facing losses, and nobody is sure how large they will be.

What next?

Northern Rock's future is uncertain. It could be sold to another bank, and the government has not ruled out other options.

The crisis has raised questions about how banks are regulated and about the system for protecting savers.