Going Down the Tubes?

As the Bear Stearns meltdown made front-page news in Britain last week, London bankers worried Wall Street's chaos could spread across the pond. And with good reason: bankers and regulators are still feeling the fallout of their own recent crisis of confidence.

Last fall, after reports of liquidity problems at Newcastle-based Northern Rock, anxious account holders led the first run on a British bank since 1866. The lines lasted only a few days, but in that time, consumers reportedly withdrew billions in deposits from branches of Northern Rock, Britain's fifth largest mortgage lender. Offers from potential rescuers—including Virgin's Sir Richard Branson—were ultimately rejected by the government, which nationalized Northern Rock in February. Last week the Financial Services Authority (FSA), the United Kingdom's financial regulator, issued a report taking the blame for not spotting Northern Rock's problems sooner.

Now there are signs that the FSA may be adopting a more aggressive policy. On March 19, it announced plans to investigate an alleged whispering campaign that was circulating rumors about HBOS (the country's fifth largest bank), and vowed to prosecute anyone caught spreading false information. But no one thinks Britain is safe, says Cass Business School's Alistair Milne: "London's turn will come."