The British Bank Crisis In September 07

762 words - 3 pages

British Bank Crisis in September 07With a statement such as, "This evening queues were still stretching out of the door at branches of Northern Rock across the country, with more than £2bn already taken out by anxious savers. The value of Northern Rock shares fell sharply again today….", or a statement like "Northern Rock is heavily reliant on the wholesale money markets for funding its mortgages, rather than deposits," many people, like Patrick Collinson from Guardian Unlimited and marketing director at Seven Investment Management, signify some circumstances of Northern Rock. What are the triggers that raised a storm of many discussions on television, in newspapers and forum about a bank that was formed in 1965 as a Building Society and converted to a limited public company in October 1997? (Companyinfo Northern Rock, 2007) Nowadays the bank Northern Rock is UK´s fifth largest mortgages lender with different mortgage types (, 28.11.07).The most important reason discussions were raised is the financial crisis in the U.S. sub-prime mortgage market. More "poor" people failed to payback their mortgages than the banks had given for. And so did Northern Rock. Northern Rock is not a traditional bank. The most business they do is providing mortgages on the wholesale market (BBC News, Sunday, 16 September 2007). They used to get the money solely from the deposits of their customers to fund new loans. When they realized that money was not enough, they started to approach a new aggressive strategy - Northern Rock started to borrow its cash from other banks. Its deposits were worth £22 billion compared with a loan book of £113 billion (, 2007). Those new strategies were successful until the entire industry faced the financial crisis. Furthermore that was not the only consequence the Northern Rock crisis caused last months. The European Stock market was affected by the crisis and accordingly the Northern Rock share decreased dramatically. Additionally, the bank schemes turned out to be too complicated, even for the people who devised them. They lost track of how risky it all was! (BB2 Money Programm, 11.09.07). Costumers faced the truth and the banks were afraid that their customers wanted their money back. People began to panic!...

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