In a positive sign of growth on the other side of the Atlantic, it appears as though the British government has finally found a buyer for the troubled banking firm, Northern Rock.

According to the Wall Street Journal’s Market Watch blog:

A third of the GBP747 million ($1.2 billion) cash price that Richard Branson’s Virgin Money is paying to buy Northern Rock will be funded from the bank’s current capital base, the Financial Times said Saturday.

According to people involved in the deal, Virgin believes it can extract up to GBP250 million of “excess capital” from Northern Rock, the paper said.

One buyer instead of several with partial ownership was the goal of PM Cameron’s government since at least last June.

I remember when Northern Rock failed in September of 2007. It has the ignemonius honour of being the first British bank to have go through a bank-run in 150 years. It was incredibly brave of the government to take the bank into state ownership. Despite the two attempts at finding a bidder for the assets, only the Bank of England was able to have enough capital to purchase the failed bank (or at least willing to pay for the toxic assets at all).

Previously, the Bank of England had said they would back Northern Rock when it was failing, a measure that temporarily raised stock prices. Yet it wasn’t enough to save the bank.

It is a testament to the severit of the credit crisis that all the solutions short of nationalisation of a bank did little to prevent its eventual demise. The crisis and leverage leaning against the bank were bringing it down in a manner that made every investor run for cover. The weight of the market was pulling it down like a giant castle being torn down.

Nationalisation is never an easy choice. Sometimes it is neccesary, however, for a government to act in order to contain a panic that would otherwise iniate the kind of fire-sale of assets that has the ability to collapse markets and keep them depressed for an unknown amount of time.

That said, Northern Rock is a special example in a unique situation in the United Kingdom, which has vastly differnet real estate lending law and regulatory oversight.If there is to be a lesson from Northern Rock that can be applied to the US, it is the idea that central bank’s ought to be ready to spend lots of cash if they have to end up cleaning up a mess in the market.

For further reading about British depository institutions, click here.

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