The jitters plaguing financial markets spread to the high street for the first time yesterday as thousands of panicking savers queued to withdraw millions of pounds from Northern Rock, Britain’s eighth-biggest bank.

The rush to pull out savings followed the revelation that Northern Rock had been forced to ask the Bank of England for a rescue injection of finance.

As crowds of customers demanded their money back, shares in Northern Rock slumped by 31 per cent after it alerted shareholders to its difficulties, wiping £900 million from its value. Shares in other financial institutions were also hit, with Alliance & Leicester down 7 per cent and the specialist lender Paragon Group down 17 per cent.

The Bank of England pledged to provide unspecified liquidity support to see Northern Rock through the turbulence while it worked on an orderly resolution to its problems. The bank is braced for a fresh surge of withdrawals from its 76 branches to-day and last night was planning to extend its opening hours.

Adam Applegarth, the chief executive, told The Times that he had ordered extra deliveries of cash in expectation of the deluge.

The nerves were exacerbated yesterday when Northern Rock’s computer system collapsed under the weight of online customers scrambling to transfer money out of the bank. Savers were blocked from seeing details of their accounts, including statements, when they tried to log in. A spokesman said accusations that the bank had shut down its system to prevent a drain on its finances were ridiculous.

Ministers, regulators and bankers tried to calm the panic by issuing reassuring statements that customers’ deposits were safe. The Financial Services Authority, which supervises banks, said that Northern Rock was solvent, exceeded its regulatory capital requirement and had a good-quality loan book.

Alistair Darling, the Chancellor, who authorised the rescue, said: “At the moment there is plenty of money in the system, the banks have got money . . . they are simply not lending in the short-term way that institutions like Northern Rock need.”

Sentiment soured further amid fresh evidence that house prices were starting to fall. Rightmove, the online property site, reported that asking prices slumped by 2.6 per cent last month. That followed a report by the Royal Institution of Chartered Surveyors showing the first fall in house prices in nearly two years.

Northern Rock customers fearing for their savings filled branches across the country, with some queues stretching down
the street. At one London branch, customers queued for more than an hour. Wil-liam Gough, 75, said he did not believe the bank’s assurances that his savings were safe. “They’re telling us not to worry, but we’ve heard it before, with Marconi,” he said, referring to the collapse of the telecoms firm in 2002.

Another saver, Gary Diamond, said: “I don’t want to be the mug left without my savings.”

Another customer, an elderly woman, said that she could not afford to take any chances. “It’s my life savings we’re talking about, my pension. I’ll have nothing left if they go under.”

A retired hotelier and his wife barricaded the Cheltenham branch manager in her office after being told that they could not withdraw £1 million savings without notice. The situation was resolved only when police officers arrived to calm the couple down.

The British Bankers’ Association said: “Everyone should calm down and refrain from making simplistic comments in a very complex area which just causes unnecessary worry and concern. Northern Rock is a sound and safe bank and there is absolutely no reason for either mortgage customers or savers to worry.” It is the first time that the “lender of last resort” facility has been used since the Bank of England set up the present system in 1998. Other banks, including Barclays, have called on the Bank of England for overnight funding in recent weeks, but using the lender-of-last-resort facility is regarded as a much more serious step.

Sources at the Bank emphasised that Northern Rock would pay a penal rate of interest on any borrowings and would have to lodge assets as security.

Many financial institutions have been hit by a sudden shortage of cash and other liquid assets as banks hoard money in anticipation of having to provide finance to complex investment vehicles. Triggered initally by defaults by poor Americans struggling to meet increased mortgage bills, the problem has spread.

Northern Rock has been hit particularly badly because it relies much more on funding from wholesale investors, who have been paralysed by the credit crunch, rather than ordinary depositors. But it also risks being accused of overaggressive lending after lifting new loans by 43 per cent in the first eight months of 2007.

Around 85 per cent, or £24.7 billion, of Northern Rock’s business comes through mortgage brokers. National Savings & Investments, the govern-ment-backed savings institution, said that it saw a 20 per cent jump in the number of inquiries yesterday, the majority from Northern Rock savers.

Northern Rock has around £24 billion of customer deposits, though some of the money is locked up for months in long-term accounts. It said yesterday that it still expected to make an underlying profit of £500-540 million this year.

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