Sept. 24 (Bloomberg) -- Prime Minister Gordon Brown's government, which insured the deposits of Northern Rock Plc customers to stop a run on the bank, seems willing to sacrifice its investors and executives to lawmakers looking for someone to blame.

While Chancellor of the Exchequer Alistair Darling guaranteed U.K. savers with accounts at the bank will lose no money, his backing doesn't extend to new accounts. That makes it difficult for the Newcastle-based mortgage lender to remain independent; its shares fell by a third since Darling's decision on Sept. 17.

``Politically, it's pretty savvy to take the position of saying, `We won't allow millions of people to lose their savings but banks are responsible for their own affairs,''' said Andrew Cooper, co-founder of Populus Ltd., which conducts opinion polls for the Times of London.

Brown, 56, who took over as prime minister in June, must insulate himself from Northern Rock political fallout to preserve the reputation for managing the economy he gained in a decade as Darling's predecessor -- a period during which he designed the current banking-regulation system and put Bank of England Governor Mervyn King in place.

Northern Rock triggered Britain's biggest banking crisis since 1973 when it tapped the Bank of England for emergency funding on Sept. 14. Depositors lined up for three consecutive business days to withdraw 2 billion pounds ($4 billion) until Darling guaranteed their savings.

`Bad Decisions'

``No government should ever be in the business of protecting executives who make the wrong call or bad decisions,'' Darling said yesterday at the ruling Labour Party's annual conference in Bournemouth, England. ``My job is to protect ordinary savers.''

It was the third time a European bank sought a bailout since the collapse of the subprime-mortgage market in the U.S. drove up the cost of overnight loans. Dusseldorf-based IKB Deutsche Industriebank AG and state-owned Landesbank Sachsen Girozentrale in Leipzig, Germany, also required rescue funding.

``They are all small banks that had very high levels of dependence on the wholesale markets,'' said Ben Ashby, an analyst at JPMorgan Chase & Co. in London.

Northern Rock had expanded its lending book without attracting more savers, forcing it to tap markets for short-term cash to fund long-term mortgages. The bank expanded its share of U.K. mortgage lending to 18.9 percent in the first half of the year from 12.2 percent in the same period a year ago.

Market Dependence

At the same time, it increased dependence on the wholesale markets. In the first half of last year, Northern Rock owed 83 billion pounds, 74 percent to institutions. By the end of June, it had ramped its borrowing up 27 percent to 105 billion pounds, 77 percent of which was from institutions.

HBOS Plc, Lloyds TSB Group Plc and Barclays Plc have ``minimal risk'' of facing the same crisis because of their scale and wider access to funding, Sanford C. Bernstein analyst Antony Broadbent said today.

``Northern Rock's business model had everyone nervous for a long time,'' said Andrew Hilton, director of the Centre for the Study of Financial Innovation, a London based research group. ``You clearly can't fire the governor of the Bank of England, and I don't suppose that Darling will fall on his sword.''

Brown granted the Bank of England independence from political control as soon as he became chancellor, and yesterday said King, whose term expires next year, has done a ``brilliant'' job. Darling plans to triple the value of bank deposits that are insured by the government to 100,000 pounds.

`Risky Activities'

Government and central-bank officials make no such endorsement of Northern Rock's management. King, who has warned for years that banks were underestimating risk, said on Sept. 20 that rescuing Northern Rock on more favorable terms may ``let down those banks who did read our report and did reduce their involvement in risky activities.''

Northern Rock shares, which peaked at 12.58 pounds apiece on Feb. 28, traded at 2.005 pounds today. Citigroup Inc. estimates the company may be worth as little as 6 pence a share.

``The whole moral of this is that it's not the job of policy makers to bail out and rescue a bank that's taken a lot of risks,'' said Stewart Robertson, an economist at Morley Fund Management Ltd. in London.

Likely Bidders

Ripplewood Holdings LLC and Lone Star Funds are among the hedge funds that are likely bidders for Northern Rock, the Financial Times reported, citing no one. The bank could also be split up by former Goldman Sachs Group Inc. banker Chris Flowers, who may join with hedge funds Cerberus Capital Management LP and Citadel Investment Group LLC, the Sunday Telegraph said, citing an unidentified person familiar with the proposal.

Darling will answer questions from lawmakers on Parliament's Treasury Committee about the Northern Rock bailout in October. Financial Services Authority Chairman Callum McCarthy testifies on Oct. 9.

Brown's handling of Northern Rock may actually add to his public standing. A survey by ICM Ltd. taken while depositors were still lining up showed Labour with a comfortable lead and Brown as Britain's most popular political leader.

Forty percent of voters back Labour compared with 32 percent for the Conservatives, the lowest reading for the opposition since December 2005, according to the survey of 1,005 finished on Sept. 16. No margin of error was given.

Northern Rock ``may begin to reinforce in voters' minds that Brown is a safe pair of hands,'' said Nadhim Zahawi, chief executive of YouGov Plc. ``In a way it's probably actually slightly advantageous. Things could go wrong, but they pulled it back.''

To contact the reporter on this story: John Fraher in London jfraher@bloomberg.net

Last Updated: September 24, 2007 04:51 EDT