THERE was some relief in the mortgage crisis today as shares in stricken lender Northern Rock bounced back following the Government's promise to protect savers' cash.
Chancellor Alistair Darling was to chair a special committee of representatives of the Bank of England and the Financial Services Authority today to assess the impact of his intervention.
The talks were expected to be held at the Treasury late th
is morning, before Mr Darling gave his verdict on how effective his pledge to back the bank has been in calming savers' fears. Downing Street today also insisted Prime Minister Gordon Brown retained "full confidence" in Bank of England Governor Mervyn King, despite some criticism of his handling of the affair.
The Tories today described the Chancellor's intervention as "playing his last card". But the gamble appeared to have paid off, with Northern Rock's shares up by more than 11 per cent mid-morning and a drop in the number of worried savers queuing at branches to take money out.
Nobody was waiting outside the Edinburgh branch of Northern Rock on Castle Street today. In contrast, around 50 people queued at 7am yesterday, and hundreds waited to withdraw savings throughout the day.
Savers had been taking their cash out of the bank at the rate of £1 billion a day since the crisis broke on Friday last week.
Mr Darling's announcement yesterday followed huge falls in Northern Rock's share price, before it rallied today.
Shares in other banks had followed suit by mid-morning. Alliance & Leicester rose 25 per cent after its shares slumped by a third on Monday, while Bradford & Bingley climbed nine per cent, before dropping back slightly.
Mr Darling said: "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 in the financial markets. This means 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."
Phil Hammond, the Tories' Shadow Chief Secretary to the Treasury, said : "The Government had no option but to act to restore calm to the markets. We are talking about real people here, their hopes and futures.
"The stability of the economy is the most important thing. The Conservatives have long warned of the dangers of building the economy on a mountain of debt.
"We need to restore confidence in the markets then take a long-term look at the way the regulatory system is structured. The Chancellor has played his last card with the guarantee he gave yesterday. People have now been given an absolute government guarantee - if that doesn't stabilise the situation, nothing will."
Lib Dem Treasury spokesman Vince Cable warned of a "near collapse" at Northern Rock which he said was "a product of greed and reckless gambling by over-paid executives; lax, indulgent banking regulations and a complacent Government".
In a full-page advertisement published in various national newspapers, Northern Rock chief executive Adam Applegarth said the company was "open for business as usual" today.
He wrote: "May I begin by offering our customers my sincere apologies for the anxiety and inconvenience that we have caused you.
"Today I want to make it emphatically clear to all Northern Rock customers that we are open for business as usual. We remain a well-managed company and continue to be a safe place for your savings, loans and mortgages."
