UK will guarantee Northern Rock deposits: Darling

Customers queue to enter a branch of Northern Rock in Kingston, Surrey, southern England, September 17, 2007. Shares in Northern Rock slid further on Monday, down as much as 40 percent as depositors continued to withdraw their cash from the embattled mortgage lender, putting its under further strain.

LONDON (Reuters) - Britain will guarantee all existing deposits at embattled mortgage bank Northern Rock NRK.L, finance minister Alistair Darling said on Monday.

Customers of the bank have rushed to withdraw money from their accounts after it sought emergency help from the Bank of England on Friday as fears grow that a global credit crunch could develop into a banking crisis.

"Should it be necessary, we, with the Bank of England, would put in place arrangements that would guarantee all the existing deposits in Northern Rock during the current instability," he said in a statement.

"This means that people can continue to take their money out of Northern Rock but if they choose to leave their money in Northern Rock it will be guaranteed safe and secure."

He said he had taken the decision "in the current market circumstances and because of the importance I place on maintaining a stable banking system and public confidence in it."

Darling said the cost of safeguarding the deposits, if required, would come from the company's assets and repeated that Northern Rock was solvent and no other bank had sought help from the central bank.

On Monday, shares in lender Alliance & Leicester AL.L fell more than 30 percent as bank shares continued to suffer in the wake of the Northern Rock crisis.

A Treasury official said if another bank were to arrange an emergency lending facility with the Bank of England and were declared solvent by the Financial Services Authority, the government would be willing to extend its deposit guarantee plan.

Darling's comments followed a meeting with U.S. Treasury Secretary Henry Paulson in which ways to improve transparency in financial markets and cross-border co-operation dominated.

"We look forward to discussing all of these issues at the IMF meetings in Washington next month," Darling said.