Mumbai: The Bank of England stepped in to rescue mortgage lender Northern Rock as the group, which has lent aggressively to home buyers, saw a run on its deposits as customers crowded into branches in London to pull out their savings.

Northern Rock, Britain''s third-largest mortgage provider, sought emergency funding from the Bank of England as rising cost of credit left the lender unable to make new loans and stoked concern among customers about their money.

Northern Rock is Britain''s biggest casualty of a global financial crisis sparked by US mortgage defaults. This is also the nation''s biggest bailout of a financial institution in30 years.

Queues stretched into the streets as customers waited to withdraw savings from Northern Rock branches, with some reports of fighting in its hometown of Newcastle.

The central bank''s support — the first time it has acted as lender of last resort on such a scale after becoming independent on interest rate policy in 1997 — puts a prop under Northern Rock, which has been hit by banks'' reluctance to lend as they hoard cash to cope with the fallout from bad US loans.

The British government said it has authorised the Bank of England to provide an unspecified amount of liquidity to Northern Rock, which had the biggest share of the new mortgage market in the first half of this year.

Bank of England, meanwhile, said Northern Rock is solvent and only in need of short-term help.

Finance minister Alistair Darling told BBC Radio that Northern Rock is the only institution to have called for central bank aid and that Britain''s economy and banking system is sound.

"There is plenty of money in the system, the banks have got money ... they are simply not lending in the short-term way that institutions like Northern Rock need," he said.

Interbank lending rates in UK rose to their highest levels for nine years this week as banks scaled back lending to each other.

Northern Rock declined to comment on the details of the financial package, though chief executive Adam Applegarth said, "clearly a substantial amount is required" and that it would be charged a penalty interest rate.

The firm said higher funding costs and a decision to rein in lending would hit profits this year and next, and that there could be job losses among its 6,000 staff. Its shares, already down almost 50 per cent this year, plunged a further 25 per cent.

Other banks, like Barclays, have obtained overnight funding under the Bank of England''s standing emergency lending facilities, but the package for Northern Rock was the first time the Bank has been called on for longer-term help during the current crisis.

The Bank of England had said earlier this week that it would not bail out insolvent companies.

The Financial Times Deutschland, meanwhile, said some large British lenders were borrowing cash from the European Central Bank via subsidiaries because of the Bank of England''s reluctance to lend.

also see : General reports on Banks & Financial Institutions