NG banks’ emergency support from investors will make it difficult for the market to assess the strength of lenders in trouble, and could lead to extra panic, analysts at Fitch said yesterday.
At the end of last year the Bank of England decided that emergency liquidity support for lenders should be covert, rather than publicised.
Regulators fear another Northern Rock-style situation, where the Bank of England tries to offer temporary assistance, only for investors to judge the bank is in trouble and pull out their funds, worsening the situation.
But Fitch said an atmosphere of partial information could be even worse.
“A bank’s heightened need for liquidity can easily become known by some market participants because it will be trying to raise funds from them,” said Fitch Ratings.
“Rumours can then spread around the market, and without full information to understand what access to liquidity the bank has, investors could certainly be inclined to withdraw funds.”
“The uncertainty could be contagious and also lead to reduced confidence of market participants in other institutions as well.”