Alliance & Leicester shares slump

Check A&L's share price

Shares in the Alliance & Leicester bank fell by more than 31% on Monday - much of the slump coming in the last half-hour of trading.

However the massive price fall was not thought to reflect big withdrawals from the bank's deposits, BBC business editor Robert Peston said.

Like Northern Rock, mortgages play a key role in A&L's business model.

But A&L is thought to be less dependent on other banks and institutions for funding than its beleaguered rival.

The firm said earlier this month that "current conditions in the funding and liquidity markets have had no material impact on either profits or franchise growth".

A&L told the BBC that there had been no change of circumstance and said that, unlike Northern Rock, it had not approached the Bank of England for any help.

Customers should have no concerns as to the safety of their money, it added.

'Remain vulnerable'

The company believes that it has been targeted by hedge funds looking to profit from identifying the next banking victim, which have been short-selling the stock, the BBC understands.

"It and other small banks - like Bradford & Bingley - will remain vulnerable to this kind of negative speculation unless and until the Bank of England succeeds in restoring confidence to wholesale money markets," Robert Peston said.

"Like all banks, A&L is suffering from the illiquidity of the inter-bank market."

Analysts from Royal Bank of Scotland said in a note that neither A&L nor fellow lender Bradford & Bingley, whose shares lost 15% on Monday, were as exposed as Northern Rock to wholesale funding.