LONDON – Britain attempted today to contain a run on the country’s fifth largest mortgage lender amid fears that a sustained panic could damage the national economy should it further undermine the confidence of investors and consumers.

Treasury Chief Alistair Darling said the British government will guarantee all existing deposits at troubled bank, Northern Rock PLC.

“I do recognize that people are concerned, that’s why we have put the matter beyond all doubt,” Mr. Darling said at a Downing Street news conference after a meeting with American Treasury Secretary Henry Paulson.

Deposits “are safe and are guaranteed, that’s unequivocal,” he added as he sought to end the panic. “People can continue to take their money out of the Northern Rock bank, but if they choose to leave their money in the bank it will be guaranteed safe and secure.”

Even as Mr. Darling spoke, customers stood in lines outside of bank branches around Britain to withdraw all or some of their deposits. Spooked consumers have removed 2 billion pounds ($4 billion) since early Friday, when Northern Rock revealed that it had asked the central bank for emergency funds and warned that its profits would take a big hit.

Scenes of nervous depositors, broadcast nationwide, appeared to stoke further apprehension.

“Extensive news coverage of people queuing up to withdraw their savings from Northern Rock could well fuel the fears that other financial institutions will be affected and increase general concern about the economic outlook,” said the chief U.K. economist with Global Insight, Howard Archer.

Mr. Archer said that if Northern Rock’s problems are not sorted out quickly, they could “have a significant dampening impact on both consumer and business confidence.”

The surprise and rapidity of Northern Rock PLC’s plight have raised questions about how the potential impact of the collapse of the American subprime mortgage market on Britain was so underrated.

Northern Rock shares tumbled more than 35 percent to 282.75 pence ($5.68) after initially being suspended today, extending losses of a similar magnitude on Friday.

Analysts said the panic by both investors and depositors has made it almost certain that Northern Rock will be sold.

“The images of customers queuing up in the high street has done irreparable damage to the franchise,” said an analyst for Charles Stanley & Co., Nic Clarke, suggesting that a buyer would have to move quickly to save the bank’s reputation.

On a grander scale, a crisis of confidence could spell the end of Britain’s decade of economic growth under former Treasury chief and current Prime Minister, Gordon Brown, should consumers cut spending and bring an end to a booming housing market.

The chief economic adviser to Ernst & Young’s ITEM Club, Peter Spencer, said that a worst-case scenario of the credit crisis could reduce Britain’s GDP growth by around 1 percent in 2008 and 2009.

Northern Rock was the first British bank in 15 years to be bailed out by the Bank of England, although it has yet to draw any of the funding it requested from the central bank at an emergency rate last week.

The mortgage lender was particularly susceptible to the global credit squeeze sparked by American banks granting house loans to Americans with poor credit histories — the debts were then wrapped up in packages sold on to banks in Europe and elsewhere — because it relies on the wholesale markets for 75 percent of its funding.

Though Northern Rock made loans mostly to people with good credit, investors interested in mortgage-backed securities have grown scarce, as have the short-term loans from other institutions that he bank had relied upon.

Despite reassurances from Darling that Britain’s banking system is in good shape, shares in other mortgage providers also sank today.

Shares in Alliance & Leicester PLC dropped more than 15 percent, while another big lender, Bradford & Bingley PLC, fell 11 percent. HBOS PLC fell 5 percent, Royal Bank of Scotland Group PLC was off 4 percent and Barclays Bank PLC down 3 percent.

However, Mr. Darling said that no other financial institution had requested emergency funding.

If the government needed to intervene to repay Northern Rock customers, it would recover the funds from the lender’s assets, not from taxpayers, he said.

Opposition Conservative Party leader David Cameron led calls for a fuller explanation from the government.

“We need to know more about the chain of events that led to the bank’s intervention,” Mr. Cameron said, citing the potential need for regulation and transparency.

Analysts have blamed lending practices in Britain that saw some mortgage providers in recent years offering loans of up to 125 percent of a property’s value and of as much as six times a borrower’s annual salary.

The availability of credit helped prop up property prices as many Britons viewed the real estate ladder as a sure bet to make money.

Former American Federal Reserve Chairman Alan Greenspan said that Britain was always more vulnerable to a credit squeeze than America because it has more adjustable rate mortgages, while Bank of England Governor Mervyn King has been urging caution in the housing market for some time.