British financial authorities said today that they had extended an emergency loan to rescue a big mortgage bank, as the effects of a global credit crunch stemming from the crisis in the American subprime lending business spread to one of the world’s most buoyant housing markets.
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The British government said it had authorized the Bank of England to provide a “liquidity support facility” of unspecified size to Northern Rock, a mortgage lender based in Newcastle, England, that has expanded aggressively in recent years.
The news prompted a sell-off in the shares of Northern Rock and other British bank stocks as investors worried about the possibility of similar problems at other institutions, as well as threats to the broader economy.
The FTSE 100 share index had fallen by more than 130 points by around noon in London today.
Northern Rock’s need for emergency financing represents a significant broadening of the effects of the crisis in global financial markets, analysts said, because until now problems at European banks have stemmed mostly from their direct exposure to United States subprime loans.