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Context of 'September 20, 2007: Bank of England Defends Handling of Northern Rock Crisis'

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Mervyn King, governor of the Bank of England, is first alerted to the problems at the troubled British mortgage giant Northern Rock. [Daily Telegraph, 2/26/2008] In a phone call with officials at the Financial Services Authority (FSA) and the Treasury, he is told about the potential impact of the global credit crunch on Northern Rock’s business. [BBC, 8/5/2008]

Entity Tags: Her Majesty’s Treasury, Financial Services Authority, Mervyn King, Northern Rock plc, Bank of England

Timeline Tags: Global Economic Crises

Matt Ridley, a former chairman of the troubled British mortgage giant Northern Rock, asks Governor of the Bank of England Mervyn King about possible support to help Northern Rock overcome a difficult period. In addition, Ridley starts to look for a buyer for the distressed bank. [Daily Telegraph, 2/26/2008]

Entity Tags: Bank of England, Mervyn King, Matthew Ridley

Timeline Tags: Global Economic Crises

Governor of the Bank of England Mervyn King writes to the Treasury Select Committee about current problems on financial markets. He tells it that the Bank will be prepared to provide emergency loans to any commercial bank that runs into short-term difficulties, provided this is because of temporary market conditions. However, he appears to rule out following the lead of the European Central Bank and US Federal Reserve in pumping huge sums into the banking system to ease problems with liquidity. [BBC, 9/13/2007; BBC, 8/5/2008]

Entity Tags: Bank of England, Mervyn King

Timeline Tags: Global Economic Crises

News of the financial difficulties of troubled British mortgage giant Northern Rock breaks in the British media. [Daily Telegraph, 2/26/2008; BBC, 8/5/2008] The BBC reports that Northern Rock’s situation is so bad that it has asked for and been granted emergency financial support from the Bank of England, in the latter’s role as lender of last resort. BBC business editor Robert Peston says Northern Rock is not in danger of going bust and there is no reason for its customers to panic. However, he adds that “the fact it has had to go cap in hand to the Bank is the most tangible sign that the crisis in financial markets is spilling over into businesses that touch most of our lives.” [BBC, 9/13/2007]

Entity Tags: Robert Peston, Northern Rock plc

Timeline Tags: Global Economic Crises

Following a report that troubled British mortgage giant Northern Rock has asked the Bank of England for emergency funding (see September 13, 2007), a run on the bank begins. [Daily Telegraph, 2/26/2008; BBC, 8/5/2008] Northern Rock issues a statement confirming the emergency funding and blaming “extreme conditions” on financial markets. The Bank, the British Treasury, and the Financial Services Authority say they believe Northern Rock is solvent and that the standby funding facility will enable it to “fund its operations during the current period of turbulence in financial markets.” However, this does not reassure savers. The share price plunges 32 percent and depositors try to withdraw their savings. Queues form outside a number of branches, the bank’s website collapses, and its phone lines are jammed. Under current British legislation, savings are only protected up to £33,000 ($66,000). [BBC, 8/5/2008]

Entity Tags: Her Majesty’s Treasury, Financial Services Authority, Northern Rock plc, Bank of England

Timeline Tags: Global Economic Crises

The Bank of England tries to find a buyer for the troubled British mortgage lender Northern Rock. It holds talks with Lloyds TSB, another large British bank, about possibly buying Northern Rock, but according to reports, by September 17 these discussions founder. [BBC, 8/5/2008]

Entity Tags: Northern Rock plc, Her Majesty’s Treasury, Alistair Darling, Lloyds TSB Group

Timeline Tags: Global Economic Crises

British Chancellor Alistair Darling intervenes in the crisis surrounding the troubled British mortgage giant Northern Rock. A run on the bank began three days ago (see September 14, 2007) and shows no sign of abating, as there are still queues outside a number of branches. Amid a further slide in the company’s share price and fears the run will undermine confidence in the whole banking system, Darling issues a statement saying the Treasury will guarantee all deposits held by Northern Rock. He says savers will not lose a penny and that his action is motivated by the “importance I place on maintaining a stable banking system.” The move appears to work and the queues outside branches will subside the next day. [Daily Telegraph, 2/26/2008; BBC, 8/5/2008]

Entity Tags: Alistair Darling, Her Majesty’s Treasury, Northern Rock plc

Timeline Tags: Global Economic Crises

The Bank of England says it will inject £10 billion ($20 billion) into the money markets to try to bring down the cost of inter-bank lending. The move is prompted by the financial crisis, which has recently engulfed leading British bank Northern Rock. One week ago, Bank of England governor Mervyn King had said the Bank would not make such an injection (see September 12, 2007). [Daily Telegraph, 2/26/2008; BBC, 8/5/2008] “This represents a U-turn on support for money markets,” says Ian Kernohan, an analyst at Royal London Asset Management. He adds, “As every parent knows, it’s all very well to talk tough, but if you don’t follow up your credibility is damaged.” Calyon analyst Daragh Maher says: “Only one week ago, governor King was arguing against providing liquidity to money markets as this would risk causing greater problems further down the road. This strategy has come in for considerable criticism… [and the change announced today] will of course open it to further criticism that its earlier strategy was flawed and that this shift may be too little too late.” [Agence France-Presse, 9/19/2007]

Entity Tags: Ian Kernohan, Mervyn King, Bank of England, Daragh Maher

Timeline Tags: Global Economic Crises

Governor of the Bank of England Mervyn King defends his handling of the banking crisis that has recently hit mortgage giant Northern Rock to members of parliament. Facing accusations of “being asleep at the wheel,” King says it would have been “irresponsible” to have intervened earlier to save Northern Rock. He also says that he would have liked to have offered financial support to the company in secret but that British and European regulations made this impossible. [BBC, 8/5/2008]

Entity Tags: Bank of England, Northern Rock plc, Mervyn King

Timeline Tags: Global Economic Crises

The British Treasury agrees to protect 100 percent of new savings deposited with distressed mortgage giant Northern Rock after September 19. The Treasury had issued a similar guarantee three weeks ago (see September 17, 2007), but that had only covered deposits made up to September 19. [BBC, 8/5/2008]

Entity Tags: Northern Rock plc, Her Majesty’s Treasury

Timeline Tags: Global Economic Crises

Troubled British mortgage lender Northern Rock names a consortium headed by Sir Richard Branson’s Virgin Group as the preferred bidder to purchase it. The bank is up for sale because it has been hit hard by the credit crisis and requires new funding. The Virgin offer includes the immediate repayment of £11 billion ($22 billion) of the £25bn ($50 billion) Northern Rock has borrowed from the Bank of England to help it through the crisis. The remainder is to be paid over the next three years. RAB Capital, which is the second-largest shareholder in Northern Rock with a stake of about 6.7 percent, says it will oppose the move from Virgin. [Daily Telegraph, 2/26/2008; BBC, 8/5/2008]

Entity Tags: Northern Rock plc, RAB Capital plc, Virgin Group Ltd

Timeline Tags: Global Economic Crises

British Chancellor Alistair Darling tells the Financial Times that he is planning to give the Financial Services Authority (FSA) more power to deal with failing banks to avoid another crisis like the one that has engulfed Northern Rock (see September 14, 2007). He proposes giving the FSA the power to seize and protect customers’ cash if a bank gets into difficulties. [BBC, 8/5/2008]

Entity Tags: Alistair Darling, Her Majesty’s Treasury, Financial Services Authority

Timeline Tags: Global Economic Crises

Troubled British mortgage giant Northern Rock agrees to sell £2.2 billion (about $4.4 billion) of its mortgage assets to US investment bank JP Morgan. The assets represent about 2 percent of its mortgage portfolio and the price represents a 2.25 percent premium on the assets’ value. Northern Rock says it will use the funds to pay back some of the £25 billion ($50 billion) in emergency loans it has been given by the Bank of England to help it through the financial crisis. [BBC, 8/5/2008]

Entity Tags: JP Morgan Chase, Northern Rock plc

Timeline Tags: Global Economic Crises

The House of Commons’ Treasury Select Committee says that Britain’s Financial Services Authority (FSA) was guilty of a “systematic failure of duty” over the crisis at stricken mortgage giant Northern Rock. MPs say the financial watchdog should have spotted the bank’s “reckless” business plan. In addition, they call for the Bank of England to appoint a head of financial stability. The FSA says it has already admitted failings in relation to Northern Rock and insists it is “addressing” them. [BBC, 8/5/2008]

Entity Tags: Financial Services Authority, Treasury Select Committee, Northern Rock plc

Timeline Tags: Global Economic Crises

The Royal Bank of Scotland (RBS) predicts “a full-fledged crash in global stock and credit markets over the next three months as inflation paralyzes the major central banks.” RBS credit strategist Bob Janjuah says, “A very nasty period is soon to be upon us—be prepared.” Bolstering Janjuah’s dire predictions, the RBS bank research team warns that the Wall Street equities index, Standard & Poor’s (S&P) 500 index is likely to fall by more than 300 points to around 1050 by September as “all the chickens come home to roost” from what the Daily Telegraph describes as “the excesses of the global boom, with contagion spreading across Europe and emerging markets. Such a slide on world [markets] would amount to one of the worst bear markets over the last century.” Janjuah also warned of the credit crisis in 2007. RBS predicts that Wall Street would rally a little in early July before quickly fizzling out. “Globalization was always going to risk putting G7 bankers into a dangerous corner at some point. We have got to that point,” Janjuah says. RBS debt market chief Kit Jukes says Europe will not be immune from the problems: “Economic weakness is spreading and the latest data on consumer demand and confidence are dire.” [Daily Telegraph, 6/19/2008]

Entity Tags: Bob Janjuah, Royal Bank of Scotland, Kit Jukes

Timeline Tags: Global Economic Crises

“The worst economic turmoil since the Great Depression is not a natural phenomenon but a man-made disaster in which we all played a part,” says Guardian City editor Julia Finch, who lists individuals who led the world into its current economic crisis (see June 2008). These individuals include:
bullet Alan Greenspan, US Federal Reserve chairman, 1987-2006: “[B]lamed for allowing the housing bubble to develop as a result of his low interest rates and lack of regulation in mortgage lending. Backed sub-prime lending; urged homebuyers to swap fixed-rate mortgages for variable rate deals, leaving borrowers unable to pay when interest rates rose. Defended the booming derivatives business, which barely existed when he took over the Fed, but which mushroomed from $100tn in 2002 to more than $500tn five years later.”
bullet Mervyn King, governor of the Bank of England: “His ambition was that monetary policy decision-making should become ‘boring.’”
bullet Bill Clinton, former US president: “Beefed up the 1977 Community Reinvestment Act to force mortgage lenders to relax their rules to allow more socially disadvantaged borrowers to qualify for home loans. Repealed the 1999 Glass-Steagall Act, prompting the era of the superbank; the year before the repeal, sub-prime loans were just 5 percent of all mortgage lending. By the time the credit crunch blew up it was approaching 30 percent.” [Guardian, 1/26/2009]

Entity Tags: Mervyn King, William Jefferson (“Bill”) Clinton, Alan Greenspan, The Guardian, Julia Finch

Timeline Tags: Global Economic Crises

The jobless rate in Britain climbs to its highest level since 1995, according to the Office of National Statistics in London. The number of people out of work hits 2.47 million, while unemployment claims rise to 1.61 million for the month of July. Data recently released by the statistics office indicate that unemployment through July rose to 7.9 percent, the most since 1996, compared to the European Union’s latest figure of 9.5 percent, 9.7 percent in the US, and 5.7 percent in Japan. Bank of England Governor Mervyn King says that even after the economy stops shrinking, households will continue feeling the recession’s pain, since “unemployment is either going to continue rising or remain high.” As much as £175 billion ($288 billion) is being printed to aid economic growth and avoid deflation. “If anything, the UK economy is only just emerging from recession, and this is a lagging indicator,” says economist Philip Shaw of London’s Investec Securities. “We’re looking at unemployment peaking towards the middle of next year. Things are likely to improve at a slow rate, but it’s likely to remain uncomfortable for a long time.” Employment minister Jim Knight tells BBC News: “Unemployment still remains a real problem for families up and down the country. We’ve got to keep the support going and not be tempted to celebrate the recovery.” In speaking on the recovery, Prime Minister Gordon Brown—up for re-election in 2010—says the economic rebound “is still fragile” and stimulus programs that boost the economy should be maintained. “There are no signs of recovery here,” Trades Union Congress General Secretary Brendan Barber says. “It might look rosier in city dealing rooms but, out in the real world, unemployment is the number one issue.” [Bloomberg, 9/16/2009]

Entity Tags: Investec Securities, Bank of England, Brendan Barber, European Union, Gordon Brown, United Kingdom, Office for National Statistics, Mervyn King, Jim Knight

Timeline Tags: Global Economic Crises

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