Northern Rock

Résumé du document

If there is any country that has enjoyed a strong reputation and willpower in the field of finance, it is the UK. UK has enjoyed this position since the end of the 19th century. London has retained and is undoubtedly the leading financial centre in Europe. The banks in London and around the UK are among the most powerful financial institutions in the world. However the sub prime-lending crisis in the US, and the subsequent credit crunch that followed, shook the finance world at the grass root level. As globalization and its integration has had a grave impact in the financial sector, the troubles and difficulties in this obscure sub-sector of the American mortgage market has resulted in harmful effects on corporations all over the world. The overwhelming majority of banks and financial institutions including well known and allegedly upstanding institutions such as Citigroup and Merrill Lynch recorded sharp losses. These losses added more confusion and chaos in the markets. For a few companies, the consequences were even bitter. To quote an example, one of the consequences were reflected in Britain's Northern Rock, which was badly hit by a ?perfect storm', and had to grapple with a severe liquidity crisis.

Extraits

[...] Queues formed at Northern Rock branches all over the country. Savers were deeply concerned some of them had entrusted their life savings to the bank and feared to loose all of it and the calls for calm from the Chancellor of the Exchequer fell on deaf ears. As the situation spiralled out of control, Alistair Darling eventually decided to underwrite all bank accounts, which put an end to the ongoing mass hysteria. The crisis encountered by Northern Rock came as a surprise even to many finance pundits. [...]

[...] Indeed, contrary to most lenders, it had a relatively small amount of saver's money; the deposits were too meagre to fund the loans granted by the bank. But Northern Rock was so anxious to corner the British mortgage market that it decided to borrow huge amounts of cash from other banks. As the subprime crisis broke out, however, financial institutions grew increasingly reluctant to lend money to each other; this move destroyed Northern Bank's business model and plunged it into crisis. Now the embattled bank is struggling for survival. Its brand has been extremely tarnished by the crisis. [...]

[...] They would undoubtedly be of greater utility if they acted as watchdogs and focused on enforcing the guidelines they issue. Of course, the subprime crisis, and the highly damaging impact it had on the finance industry, might have a silver lining. As the machinery stuttered, the weaknesses of the system became apparent. For once, investment bankers who are often blamed for being complacent, and keen to play down their mistakes had no other choice but to face up to their responsibilities! [...]

[...] Northern Rock The UK has enjoyed a strong reputation in the field of finance since the end of the 19th century. London is undoubtedly the leading financial centre in Europe, and its banks are among the most powerful in the world. But the subprime-lending crisis in the US, and the credit crunch that followed, shook world finance to its foundations. Due to a high degree of financial globalisation and integration, the troubles in this obscure sub- sector of the American mortgage market had harmful effects on corporations all over the world. [...]

[...] Who is to blame for Northern Rock's collapse, and for the global turmoil in financial markets? Bankers, it seems, have behaved in a deeply irresponsible way. Emboldened by good macroeconomic conditions, and by the steady growth in financial markets, they gradually lost sight of the risk aspects associated with financial activity. Mervyn King, the Governor of the Bank of England, was also put under fire for his mismanagement of the crisis. Some analysts point the finger at his very conservative approach, and argue he should have reacted more quickly. [...]