Perceptions of danger

The Northern Rock disaster is fascinating. Here's a business that managed to borrow from the Bank of England - admittedly at poor rates - and that, it turns out, had two potential acquirors talking to it. Here, too, is a regulatory system that repays almost all a saver's first £35k of deposits in any bank. And people are queuing to take their money out.

What is intriguing is that brokers might actually be safer for larger savers than banks - simply because funds are held in segregated client accounts. That won't help against fraud, but should enable investors to reclaim funds in the case of collapse. Besides, the compensation limit is higher (£48,000 instead of £35,000).

Pensions, widely distrusted by retail customers, are safer still, with no unlimit on the amount of compensation (90% of total invested).

So the 'safe as houses' bank or building society could, in fact, be riskier than equity investment. Interesting.

Where Northern Rock will have a major impact is in the availability of funds to the property market. The Rock had invested heavily in growing its mortgage book - one reason it needed to borrow on the financial markets rather than using savers' deposits to fund its lending. By mid 2007 it was writing a fifth of new mortgage business in the UK.

Now, it looks as if Northern Rock will practically be closed to new business. That's a 2o percent fall in mortage availability. Never mind what rates these mortgages may or may not be available at - credit quality will have to be increased to ration funds.

And with the markets as they are now, it will be a brave bank that aims to grab the Rock's 20% market share.