Depositor Panic Triggers Run on UK Bank, Over Leveraged Banks at Risk

Implications: Police were called to manage crowds in the UK this morning as depositors lost confidence in Northern Rock and attempted to withdaw funds en masse. Depositor concerns are believed to relate to weak loan to deposit ratios and fears about exposure to subprime mortgages. Banks mentioned among the most highly levered include Northern Rock, Alliance and Leicester, HBoS and Bradford and Bingley. Lloyds TSB, Royal Bank of Scotlad, Barclays and HSBC are shown to be in a much better position. If concerns escalate to panic this will seriously impair money supply and weaken the economy of the UK with potential spill over into other markets if the panic spreads.

Analysis:

Banks most exposed include Northern Rock which has a loan to deposit ratio of 3.25 this compares poorly to HSBC which has a vastly greater deposit base and a reported loan to deposit ratio better than 1 to 1.

Markets are moved by mass mood swings and this weekend news report from the UK is cause for immediate concern. All markets are susceptible to mass media and fear. News that police have to be called to calm a run on a bank is just the type of thing that could trigger a serious economic shock that could propogate around the world very quickly.

More to come...