Background:For Northern Rock, the world changed on August 9th. That was the day when a crisis of confidence hit the money markets, causing liquidity to dry up in the banking system. It was also the day when executives at the Newcastle-based building society realised that their 10-year run in the capital markets was probably over.

For a month, Northern Rock tried to weather the storm. But a week ago, the bank's directors accepted the inevitable and approached the Bank of England for an emergency line of credit. With that, the first bailout of a British bank in several decades was under way.

The bank, which is one of the biggest mortgage lenders in the UK, slowed down its new lending and encouraged redemptions to hoard cash. Executives hoped the end of the summer holidays would ease paralysis in the financial markets. But by the start of September, it was clear that conditions would not become easier.

Northern Rock, a pioneer among European banks because it used the world's capital markets to fund its business, found all its traditional sources of funding - the investors who had queued up to buy commercial paper, mortgage-backed securities and bonds backed by Northern Rock mortgages - had all dried up.

By early September, Northern Rock was relying almost entirely on the overnight money markets to finance its commitments. "I can't look back and see any time when it has happened before. Every single market froze," Adam Applegarth, Northern Rock's chief executive, said yesterday. "It's an astonishing thing to see the sterling three-month inter-bank market effectively not exist."

Even before the crisis, all was not well. Northern Rock had issued a profits warning at the end of June. Throughout August, the bank was in regular touch with its supervisors at the Financial Services Authority (FSA).

By the start of this week, it was known Northern Rock would seek emergency funding from the bank. Mervyn King, bank governor, added a paragraph to his letter to the Commons treasury committee on the bank's role as lender of last resort, to pre-empt the surprise when it happened.

Northern Rock made its formal request for funds on Thursday. The FSA said the lender was solvent and the bank, concerned about wider confidence to the system, argued that if Northern Rock failed, a widespread bank run would be in prospect.

With this advice, Alistair Darling took the decision to authorise a lending facility in the early evening on Thursday. By this time the bailout was public knowledge, but the legal documents were only finalised at 3am.

Following the bailout, however, the pressure to find a buyer is likely to increase, especially as savers exacerbate the crisis by withdrawing cash. "It's got to be sold and it's got to be sold quickly," one investment banker said. "Otherwise it's mayhem." - (Financial Times service)