Savers demanded their money back on Monday from the British bank hardest hit by the global credit crisis, while U.S. Treasury Secretary Henry Paulson said financial market turbulence could continue for a while.

Shares in UK mortgage lender Northern Rock plunged further as customers queued for a third day to withdraw funds, despite assurances their money was safe after its rescue on Friday by emergency Bank of England funding.

Northern Rock, once a darling of the bank sector for its innovative use of financial markets for funding, has little exposure to high-risk debt. But it got into trouble when global worries about the widespread repackaging of poor-quality debt made banks reluctant to lend to each other in August.

Paulson, visiting Paris, acknowledged bad lending practices were at fault in the crisis triggered by defaults on U.S. mortgage debt, but said the squeeze was happening against a backdrop of global financial strength.

"The whole world including the U.S. has benefited from innovative financing techniques -- innovations like securitization and credit availability -- and we want to make sure we don't rush to judgments there," he told a news conference, urging caution in applying any new regulation.

He also cautioned: "It will take a while to work through the turbulence in capital markets," but added: "We're doing so against a backdrop of a strong global economy."

Financial markets expect the Federal Reserve to cut U.S. benchmark interest rate on Tuesday to help ease the squeeze, which risks hurting major economies by driving up market interest rates and tightening the terms set for companies and consumers to borrow.


Former Fed chairman Alan Greenspan said the probability of a U.S. recession was now slightly more than a third after earlier in the year putting the chances at one-third, The Wall Street Journal reported in its online edition on Monday.

But he also said his successors at the U.S. central bank should be cautious about cutting interest rates because of inflation risks and he forecast home prices will drop further, according to interviews published on Sunday.

Monday is a crucial day for financial markets as they discover how far borrowers have succeeded in meeting a deadline for refinancing high volumes of commercial paper -- short-term debt used to fund longer term investments.

But even if this hurdle is overcome the crisis could roll on for months as more U.S. mortgage borrowers become due to reset low early payments on their loans at higher interest rates.

In New York on Friday, Merrill Lynch & Co warned that shaky credit markets had forced it to reduce the value of securities linked to risky subprime mortgages and other products, a move that could hurt third-quarter profits.

Investors will be watching third quarter earnings results this week from four other big investment banks -- Lehman Brothers, Morgan Stanley, Bear Stearns Cos. Inc. and Goldman Sachs Group Inc. -- to assess how deeply the credit crisis has cut.