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The sub-prime crisis, the credit squeeze and Northern Rock: the lessons to be learned

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  • Maximilian J.B. Hall

Abstract

Purpose – 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 Info

Article provided by Emerald Group Publishing in its journal Journal of Financial Regulation and Compliance.

Volume (Year): 16 (2008)
Issue (Month): 1 (February)
Pages: 19-34

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Handle: RePEc:eme:jfrcpp:v:16:y:2008:i:1:p:19-34

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Related research

Keywords: Banking; Banks; Business failures; Financial institutions; United Kingdom;

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Cited by:
  1. Siregar, Reza & Lim, Vincent C.S., 2011. "Living with Macro-financial Linkages: Policy Perspectives and Challenges for SEACEN Countries," MPRA Paper 28417, University Library of Munich, Germany.
  2. Muliaman Hadad & Maximilian Hall & Karligash Kenjegalieva & Wimboh Santoso & Richard Simper, 2011. "Banking efficiency and stock market performance: an analysis of listed Indonesian banks," Review of Quantitative Finance and Accounting, Springer, vol. 37(1), pages 1-20, July.
  3. Hauck, Achim & Vollmer, Uwe, 2013. "Emergency liquidity provision to public banks: Rules versus discretion," European Journal of Political Economy, Elsevier, vol. 32(C), pages 193-204.

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