Abstract:
In August 2007 the United Kingdom experienced its first bank run in over 140 years. Although Northern Rock was not a particularly large bank (it was at the time ranked 7th in terms of assets) it was nevertheless a significant retail bank and a substantial mortgage lender. In fact, ten years earlier it had converted from a mutual building society whose activities were limited by regulation largely to retail deposits and mortgages. Graphic television news pictures showed very long queues outside the bank as depositors rushed to withdraw their deposits. There was always a fear that this could spark a systemic run on bank deposits. After failed attempts to secure a buyer in the private sector, the government nationalised the bank and, for the first time, in effect socialised the credit risk of the bank. It is now a fully state-owned bank...
Subjects:
Northern Rock
retail banking
mortgages
nationalisation
bank failure
United Kingdom
LPHI risk
lender of last resort
deposit insurance
market discipline
Countrywide
IndyMac
United States
deposit guarantees
supervisory failure
bank regulation
return on equity
business model
securitisation
financial regulation
financial stability
crisis management
banking law
insolvency
emergency liquidity assistance
cross-border bank insolvency
moral hazard
penalty rates
teaser rates
capital-asset ratios
Basel I
Basel II