Byline: Sudeshna Sen

LONDON: Northern Rock's troubles seem all set to blow up into a full scale panic, and put Britain's Labour Party on the back foot. Despite Chancellor of the Exchequer Alistair Darling going on TV to assure the public that troubled British bank Northern Rock is solvent,

Thousands of Northern Rock customers queued up at the bank's 76 branches over the weekend, and withdrew in excess of ?1.5 billion, as speculation rose that the only way out for the bank now is for its ?100 billion mortgage portfolio to be broken up and sold to its other high-street peers in the private sector. The Sunday Telegraph reported that Northern Rock's top boss, had made a public appeal for a white knight takeover from the private sector. Northern Rock, as a bank, is expected to disappear from the high streets after the debacle.

The Northern Rock issue, and fears that the money market crisis is tipping over into UK's buy now pay later economy is expected to be top of the agenda in talks between US Treasury secretary Hank Paulson, who is expected in London on Monday to discuss the global credit crisis with chancellor Alistair Darling. Britain's finance minister said on Sunday, his second public appearance in just two days, that while Northern Rock is "solvent," and the money is "there if people want to withdraw it," international banking regulations need improvement.

Meanwhile, UK's feisty Sunday papers went to town with gloom and doom scenarios for the British economy, ripping into the troubled bank's track record and raising alarms about the impact of 'mortage' madness spilling over into the real economy. Conservative leader David Cameron jumped into the fray, accusing Gordon Brown and the Labour Party of recklessly building an economy on a mountain of debt. Writing in the Sunday Telegraph, he said that while the trigger for the current crisis was pulled in the US, "the gun has been loaded at home". Cameron said personal debt had trebled in the last 10 years to ?1.3 trillion, meaning "we now owe more than our national income".

Mr Darling said the problems caused by the fallout from the US subprime mortgage crisis were greater in the United States and Germany, and that the British economy was more than able to weather the crisis. All these assurances seem to have not much impact on the bank's customers, as an estimated 6% of the bank's deposits have been pulled out by anxious customers, mostly pensioners. Police had to be called in certain parts of England on Saturday to help control anxious crowds of Northern Rock savers intent on emptying their accounts on Saturday.

The Times estimated that more money may be withdrawn this week, as about ?10 billion is held by customers through postal accounts and can only be withdrawn by post. While banks like Lloyd's TSB, HSBC, HBOS, RBS and Barclays have been named as potential buyers, reports suggested that the banks may not be all that interested in picking up bits and pieces of Northern Rock. Lloyds, the favourite, is reported to have thought otherwise, while HSBC, itself battling activist shareholder battles, is unlikely to be interested. While the terms of the BoE's rescue have not been disclosed, media reports said that it included a penalty interest of over 7%, and included a possible break-up of the bank. The Bank of England, as lender of last resort, had stepped in to offer Northern Rock access to emergency funds, though it has not yet drawn on them.