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

Author

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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.

Suggested Citation

  • Maximilian J.B. Hall, 2008. "The sub‐prime crisis, the credit squeeze and Northern Rock: the lessons to be learned," Journal of Financial Regulation and Compliance, Emerald Group Publishing Limited, vol. 16(1), pages 19-34, February.
    • Handle: RePEc:eme:jfrcpp:v:16:y:2008:i:1:p:19-34
    DOI: 10.1108/13581980810853190
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    Citations

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    Cited by:

    1. Akbar, Saeed & Rehman, Shafiq ur & Liu, Jia & Shah, Syed Zulfiqar Ali, 2017. "Credit supply constraints and financial policies of listed companies during the 2007–2009 financial crisis," Research in International Business and Finance, Elsevier, vol. 42(C), pages 559-571.
    2. Günsür, Başak Tanyeri & Bulut, Emre, 2022. "Investor reactions to major events in the sub-prime mortgage crisis," Finance Research Letters, Elsevier, vol. 47(PB).
    3. 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.
    4. Reza Siregar & Lim, C.S. Vincent, 2011. "Living with Macro-financial Linkages: Policy Perspectives and Challenges for SEACEN Countries," Staff Papers, South East Asian Central Banks (SEACEN) Research and Training Centre, number sp79, April.
    5. Akbar, Saeed & Kharabsheh, Buthiena & Poletti-Hughes, Jannine & Shah, Syed Zulfiqar Ali, 2017. "Board structure and corporate risk taking in the UK financial sector," International Review of Financial Analysis, Elsevier, vol. 50(C), pages 101-110.
    6. 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.
    7. Akbar, Saeed & Rehman, Shafiq ur & Ormrod, Phillip, 2013. "The impact of recent financial shocks on the financing and investment policies of UK private firms," International Review of Financial Analysis, Elsevier, vol. 26(C), pages 59-70.

    More about this item

    Keywords

    Banks; Banking; Financial institutions; Business failures; United Kingdom;
    All these keywords.

    JEL classification:

    • 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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