Northern Crock. Northern Wreck. Northern Pebble. The nicknames dished out to Northern Rock yesterday speak volumes about the future of Britain’s fifth-biggest mortgage lender.

It is unlikely to have one - at least not in anything like its present guise.

Ideally, a larger, stronger institution may be persuaded or even tempted to take it over. It is strongly capitalised, has a good portfolio of solid prime mortgages and a useful branch network. Two institutions are understood to have taken a look.

But these are difficult times for the obvious contenders. Barclays and Royal Bank of Scotland are still scrapping for ABN Amro in a battle that looks increasingly surreal amid the turmoil in financial markets. HSBC has more or less sworn off Western acquisitions as it seeks to reestablish its credentials as an emerging markets bank. HBOS and Lloyds TSB are thought to have little appetite for such an adventure.

Widening the search further afield may be more fruitful for the Rock board. If Bank of America, Crédit Agricole, of France, or ING, of the Netherlands, want a decent toehold in British financial services, now they could be sure of being welcomed with open arms.

If no white knight comes along, the Rock may just wither away. The Bank of England is providing the lender of last resort facility to ensure that every cash withdrawal request can be honoured. But it is hard to see the bank doing much new business while such a shadow hangs over it.

For the moment the role of Adam Applegarth, chief executive, is little more than logistical: making sure that enough lorryloads of banknotes are delivered to the back door of his branches to be taken out of the front door by anxious customers.

Short of a miraculous reverse in its fortunes, the name Northern Rock is likely to enter folklore as an institution to be uttered in the same breath as Barings and BCCI. That will not be fair.

There has been no fraud. Until recently the bank was being applauded as a model of solid low-cost lending. It has dabbled no more irresponsibly in US sub-prime than most of its rivals.

But in the world of retail banking – where confidence is everything – the Rock’s reputation is tarnished. Most people queueing in Northern Rock branches yesterday probably did not really believe that their nest-eggs were going to vanish but will have thought: “Why take the risk?” The psychology of bank runs has more to do with herd behaviour than cool logic.

Customers will get their money back if and when they ask for it. Existing mortgage and credit card borrowers will continue to have their accounts administered. Northern Rock is, indeed, solvent, as ministers and regulators were anxious to point out yesterday, but that does not mean that it can continue to operate as before.

It looks ominous for the 6,500 staff and for Tyneside, which has benefited from playing host to a FTSE 100 company and for the Rock’s huge contributions to local charities.

For the shareholders, much will depend on how quickly Rock can find a buyer or some kind of partner to restore credibility.

The 31.5 per cent slide in its share price yesterday was painful, but actually quite encouraging – the market still believes that it is worth £1.8 billion. The Bank of England’s support at least gives the board some breathing space to consider what to do next and if necessary to begin an orderly disposal of saleable assets.

It is far too early to make firm judgments, but the Chancellor, the Bank of England and the Financial Services Authority were probably right to offer the lender of last resort facility.

Northern Rock is not one of the four or five financial institutions at the heart of the financial system, but it is still a major second-tier company with a high street presence.

To have risked a bank with £24 billion of retail deposits going under would have been unthinkable, damaging financial stability and the wider economy. Moreover, there is no reason why the rescue should cost taxpayers a penny.

The Bank will be lending at a punitive rate and taking some of Rock’s prime mortgage assets as security, with a big margin of safety thrown in. So, in theory, for the public purse to be affected, not only will Rock will have to fail, but large numbers of its borowers will have to default and house prices will have to fall significantly.

That does not seem such an unreasonably long-odds risk to take if the Bank succeeds in restoring calm.

Yet it may be a long haul. There is no sense of the liquidity famine ending any time soon. Moreover, the price of ensuring that the ordinary depositors get treated properly is that the professionals in the wholesale money markets get a free ride.

The next few weeks are going to see billions of pounds paid out by Rock as its commercial paper comes due.

The Bank of England has also set a precedent that it might live to regret. By announcing that it is ready to make further lender of last resort facilities available to other struggling institutions in comparable circumstances, it is writing a blank cheque.

With hindsight, Northern Rock’s strategy of relying on the wholesale money markets for the bulk of its funding was flawed. Professional investors have proved less reliable and more prone to funk than the armies of retail depositors on whom more traditional lenders rely.

The board and their supervisors at the FSA must be called to account on how this was allowed to happen.

W hy did the stress-testing supposedly used to ensure that banks are able to withstand any hurricanes thrown at them fail to spot the weakness? Has there been too much emphasis on balance-sheet strength and too little on retaining big enough pools of liquidity?

Banks are different. Their survival cannot just be left to market forces and the law of the financial jungle.

Some have too special a place in the heart of the financial system to be allowed to fail. The wider question for policymakers, as they witness the agonies of Northern Rock and others, is whether they have been abusing that privileged position.

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