Northern Rock shares plunged a further 19 per cent today as the British Treasury outlined the precise terms of its proposed guarantee to customers of the beleaguered mortgage lender.
The Treasury said it would cover all accounts existing accounts at midnight last night, September 19th, and reopened accounts.
The guarantee covers future interest payments, movements of funds between existing accounts, and new deposits into existing accounts.
The Treasury said its guarantee would cover existing and renewed wholesale deposits and existing and renewed wholesale borrowing that is not collateralised.
But the move did little to shore up Northern Rock's share price which fell nearly 19 per cent to 210 pence on the London Stock Exchange. The shares had hit a low 176 pence at the outset of the crisis.
Alistair Darling, the British chancellor of the exchequer, said earlier in the week that the government would guarantee all the bank's existing deposits. The move goes well beyond the government's existing guarantee, which protects 90 per cent of deposits up to £35,000 (€52,000).
Over 100 people queued outside Northern Rock's sole office on Dublin's Harcourt Street, earlier in the week. Many had travelled long distances and there were angry scenes as customers become frustrated with the delays.
The volume of withdrawals from Northern Rock, which held €2.3 billion in Irish deposits up to last week, has created delays in the clearing system and many of those who withdrew funds through the internet as far back as last Friday have yet to receive their money.
The bank, which is the fifth biggest mortgage lender in the UK, has been hit by the so-called credit crunch, where banks have become unwilling to lend money to each other because of high rates of bad debt in the US subprime mortgage market.
The Bank of England hit back today at accusations it was asleep at the wheel over its handling of the Northern Rock crisis and denied it had performed a U-turn over its stance on not bailing out markets.
Governor Mervyn King said the central bank had changed tack and decided to offer an extra £10 billion in three-month loans yesterday because of the impact on confidence of huge queues of customers waiting to withdraw money from Northern Rock.
Mr King said the crisis of confidence might not have happened if the central bank had been allowed to be more discreet as a lender of a last resort. "