The Financial Regulator is keeping in "close contact" with the UK Financial Services Authority (FSA) and is monitoring developments at British mortgage lender Northern Rock which has received emergency financial support from the Bank of England to help it through the credit market crisis.
In a highly unusual move, the Bank of England announced last night it would step in to give short-term credit to Northern Rock to help it through the squeeze on liquidity.
The bank, which has over 24,500 Irish customers with €2.4 billion on deposit, will be bailed out by the Bank of England in its capacity as "lender of last resort". As such, the mortgage firm will be provided with short-term credit which is likely to be charged at a higher rate of interest.
In a statement issued this afternoon the Financial Regulator said it would "continue to maintain close contact with the FSA who are keeping us informed and are monitoring the situation closely."
The regulator said while the financial health of Northern Rock is regulated by the UK FSA, the Irish Financial Regulator "maintains close links with the FSA and other regulators and has of course been in contact with FSA in relation to the current situation."
Experts have reassured customers that they will not be affected, but the latest development is the most dramatic example yet of the impact of the drying up of the money markets.
In early trading today, shares in the company fell 21.75 per cent to 500 pence.
Nothern Rock branch in Newcastle
Interbank lending costs rose to their highest level for nine years this week as banks scaled back short-term lending to each other.
Northern Rock has been the hardest hit UK lender as it relies on wholesale markets far more than competitors for its funding requirements.
The bank has been operating in the Republic for the last seven years and according to their accounts in July, they had 24,500 saving customers. The average account is €97,000, and their business is concentrated online.
"The decision to provide a liquidity support facility to Northern Rock reflects the difficulties that it has had in accessing longer term funding and the mortgage securitisation market, on which Northern Rock is particularly reliant," the British government said in a statement today written in conjunction with the Bank of England and Financial Services Authority (FSA).
"The FSA judges that Northern Rock is solvent, exceeds its regulatory capital requirement and has a good quality loan book," it added.
Northern Rock gets about three-quarters of its funding from wholesale markets and a quarter from retail deposits, whereas rivals such as HBOS get about half their funds from retail deposits.
Rumours swirled earlier yesterday that Northern Rock was seeking emergency funding from the central bank, sending its shares down over 4 per cent.
The Bank of England said earlier this week it would not bail out insolvent institutions.