Northern Rock defers payments to conserve capital

Northern Rock has halted payments on some of its debt to conserve capital - its first deferred payments since nationalisation. The bank, which recently reported first-half losses of £725 million, said it had taken the action because its capital base had fallen to a level below its minimum regulatory capital requirement. While the bank awaits approval for state aid, the Financial Services Authority is to allow it to operate with smaller capital reserves than the regulator would normally require. Those low capital levels in turn mean the FSA is to restrict the amount of mortgages Northern Rock can write this year to £4 billion - £1 billion short of the bank’s original target.