Northern Rock has Stg113bn in loan assets principally mortgages.  This is what it owns.  It has Stg24bn in deposits.  This is what it owes.  Consequently, its liabilities are 4 times covered by its assets.  This means it is a sound bank from a solvency perspective and has little chance of going bust.  Instead it has a liquidity problem as a fallout from the U.S. sub-prime debacle.  It cannot raise money on the wholesale market between banks.  It has consequently sought money from the lender of last resort, i.e. the Bank of England.  This is much like seeking a business seeking an overdraft from a bank to cover a short-term cash flow problem. 

My guess is that Northern Rock is now a take-over target and will be bought for its juicy assets, if its share price does not recover.  Logically, therefore, there is nothing unsound about the bank based on the information currently available as of Friday morning, 14th September and based on the statements issued by the UK Financial Regulator, responsible for its prudential supervision.

The emotional side however can be more important and over-ride financial logic.  There is nothing worse in finance than the fear of a bank bust.  In other words eliminating the extreme worry that some depositors will feel is more important than getting the extra rates of interest that Northern Rock has been paying in the Irish market.  So, if it will cause you sleep loss and stress, if you will be disturbed by ongoing media coverage, you should move to another bank.  The question is which one, because we simply don't know which banks are also vulnerable to the interbank credit squeeze. 

I would avoid banks who have aggressively lent to the Irish developer sector in particular, as these may become problems over the short-term and choose a mainstream bank with a good credit rating.  The irony is that in the absence of knowing where the virus from the sub-prime fallout has spread, we cannot entirely rely on credit rating agencies.  It is a timely reminder that there are no absolute guarantees even with banks.  The inevitable run on Northern Rock deposits will test its technology and service and this will test the strength of the support from the U.K. Regulator and the Bank of England.