The sub-prime crisis, the credit squeeze and Northern Rock: the lessons to be learned
AbstractPurpose – On 14 September 2007, after failing to find a “White Knight” to take over its business, Northern Rock bank turned to the Bank of England (the Bank) for a liquidity lifeline. This was duly provided but failed to quell the financial panic, which manifested itself in the first fully-blown nation-wide deposit run on a UK bank for 140 years. The purpose of this paper is to analyse why these events unfolded and what can be done to prevent a repetition. Design/methodology/approach – This paper briefly explains the background to these extraordinary events before setting out, in some detail, the tensions and flaws in UK arrangements which allowed the Northern Rock spectacle to occur. Findings – None of the interested parties – the Bank, the Financial Services Authority and the Treasury – emerges with their reputation intact, and the policy areas requiring immediate attention, at both the domestic and international level, are highlighted. Some reform recommendations are also provided for good measure, particularly in the area of formal deposit protection. Originality/value – The analysis and recommendations contained in this paper are offered up as a contribution towards and stimulant of this wider debate which is urgently needed, given the continuing threats faced by the domestic and international financial system.
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Bibliographic InfoArticle provided by Emerald Group Publishing in its journal Journal of Financial Regulation and Compliance.
Volume (Year): 16 (2008)
Issue (Month): 1 (February)
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Other versions of this item:
- Maximilian J. B. Hall, 2008. "The sub-prime crisis, the credit squeeze and Northern Rock: The lessons to be learnt," Discussion Paper Series 2008_09, Department of Economics, Loughborough University, revised Aug 2008.
- E53 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Deposit Insurance
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
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