The current situation with Northern Rock shows just how important customer confidence is when you are (as are virtually all banks) profiting from the borrow short / lend long play. Without deposit insurance (which, I should add I oppose) panics can develop without logical foundation

As their most recent balance sheet makes plain they are entirely solvent – but cannot realise their mortgages fast enough to meet highly abnormal demands for repayment of deposits. This will may mean that the B of E will have to arrange a sale to the highest bidder – and the rumours I have heard is that a few institutions are looking at it, including the National Australia Bank, which has been looking around for further acquisitions in the UK.

The NAB would be a good purchaser, with, in contrast to the Rock, a good deposit base and no real reliance on wholesale funds – the reliance that triggered all this off for Northern Rock.

The lesson here? Watch that name risk and make sure that any announcement of problems is phrased correctly. Having the Bank of England make an announcement that it was moving in as lender of last resort, as Northern Rock did, probably does not set the right tone.

Have your plan up to date and ready to go at all times – take it off the top shelf, blow off the dust and review it now. You never know when you are goi

ng to need it.