CONSEQUENCES of the run on Northern Rock are many and varied.

The obvious ones are clear – it helped spark the deepest recession since the 1930s, cost the taxpayer billions of pounds when the bank and many of its counterparts were taken into public ownership, and resulted in thousands of people losing their jobs – not least Northern Rock employees.

It also led to a series of banking reforms by the UK Government designed to safeguard consumers in the future.

Not so obvious, and still extremely evident five years on, is the crisis of confidence it has caused – which, in part, is perhaps responsible for the economy shrinking a second time at the start of this year, putting the UK officially into a double-dip recession.

“Consumer confidence in banks is at an all-time low,”

said Angela Russell, finance director at Newcastle Building Society.

“It is good time for building societies, as we have a mutual model, which is different from the banks, but I would prefer we have a very strong banking sector in the UK.

“I have absolutely no doubt that all the images, which were shown around the world on the television, of the queues outside Northern Rock, and there being a run on a large UK financial institution, would not have been helpful to the UK banking sector in terms of building confidence in the world.

“We have moved on so much since then.

“We have got increased regulations and monitoring, and new capital requirements coming in.

“With everything going on, the UK financial sector has probably held up pretty well.

“With everything going on in the eurozone, the UK is still seen as a safe haven in terms of banking.”

This said, Ms Russell believes the run on Northern Rock could not have been predicted, because no one expected the freezing of the wholesale credit markets – where banks raise money by selling debt in the form of bonds.

The market became stagnant after investors made wide-spread losses by investing in debts loaned to US homebuyers with poor credit history – sub-prime loans – and consequently became wary of buying any debt.

“I do not think anyone could have predicted that at the time,” she said.

“There has been a massive change in regulation and over-seeing of financial institutions since Northern Rock happened.

“I think it could have been prevented by control of the market for more complex products.

“It is really that which kickstarted the problems which caused the lack of confidence, whereby investors in complex products got nervous and became reluctant to invest.

“The business model was reliant on tertiary markets to come up with the next level of funds.

“Who would have thought the tertiary markets would fall away? It was unpredictable.”

She said the crisis had changed the way some banks do business.

“Because what happened to Northern Rock was a consequence of the freezing of the wholesale markets, financial institutions tend to move towards returning to being funded by retail savings, which are more stable,” she said.

“We always had a strong retails savings base (money raised directly from savings accounts) and have been able to grow our retail savings base very significantly over the last few years.

“That has proved a dependable income system which has helped protect us during the financial crisis.

“In terms of mortgage financing, we have seen less demand.

That is just a consequence of business and the consumer confidence being relatively low.”

SHE said there had been a marked shift in consumer awareness since the crisis.

“I would say consumers are much more informed now about financial services compensation schemes.

“We see much more spreading of cash around and opening of joint accounts to take advantage of that.

“That is good. It means they are more protected.”

She said financial institutions needed to be encouraged to lend and employers needed to be encouraged to create jobs.

She added: “It is all about job creation and building confidence now.

“We have had extremely low interest rates for a long time now and quantitative easing has been used several times to stimulate the economy.

“What we need to do next is to tackle the demand problem.

“Consumers are still worried about whether they will lose their jobs and they are nervous about house prices falling.

“That is making them put off a decision to buy a house or move.

“We have got a product which gives a 95 per cent mortgage to first-time buyers.

“We have products available but we still see consumers being very cautious about taking a big step.

“We are in a period now where we are seeing lots of mixed messages coming out.

“One day we are getting positive figures about manufacturing and the next day the figures are down.

“What we need is a positive trend. Markets are very easily shocked by bad news.

“That has certainly been exacerbated by what is going on in Europe.

“I think we have probably reached the bottom, but it may be tough for another 12 to 18 months.

“It will take sometime and be a slow recovery, and it is very dependent on actions to build confidence.”

􀁧 See Jobs and Business on Wednesday for a double-page spread on how the crisis unfolded and its long-term impact on the North-East economy.