The government have announced that Northern Rock intend to do £14bn in new loans by 2011. The new loans will be financed by new deposits, repayments on existing loans and more government money.

The Chancellor, Alistair Darling said this is one of a series of measures being taken to rebuild the banking system. He confirmed “it’s repaid about £18bn of the loan the government made, and I said in January this year that because of the problems the mortgage market faced, instead of looking to wind down its business, it would be better for Northern Rock to maintain lending”.

Industry experts have welcomed the announcement and hope that Northern Rock will provide inspiration to other lenders. It is widely accepted that inter bank lending is necessary for economic recovery, so this news has been welcomed, however general consensus seems to be that the government should be taking more extreme measures and concerns have been expressed over a lack of consistency in their approach.

Northern Rock is to undergo further restructuring but fears exist that existing borrowers will be dealt with in a less generous manner than new business. Some are criticising the government for a complete u-turn on their policy regarding nationalised banks, however the government are convinced this latest step is necessary to stimulate the economy.