Professional Documents
Culture Documents
EVENTS
In 1997, Northern Rock converted to bank status, with a:
Central securitisation strategy
Funding predominantly on secured wholesale and other
capital market funding
During the summer of 2007,
It was a victim of the general market turbulence and lack
of confidence triggered by worsening developments in
the US sub-prime mortgage market
EVENTS
In the summer of 2007,
Notwithstanding unprecedented UK government support,
depositors withdrew funds on a large scale
In September 2007,
Northern Rock was forced to seek massive financial
STRATEGY
Originate and distribute model as the core business
strategy
STRATEGY
Funding mainly from the wholesale markets, rather than
STRATEGY
That strategy exposed to the following problems:
An unexpected downturn in the securitization market
STRATEGY
During the 2007 turmoil,
The bank or its conduits were unable to roll-over
maturing funding
The liquidity squeeze raised the cost of wholesale
funding
THE COLLAPSE
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THE RESCUE
The government rescued NR by arbitrarily guaranteeing
all deposits held which was contrary to the wellestablished deposit protection scheme.
Creating serious moral hazard issues with respect to
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RISKS INCURRED
Portfolio
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test scenario of liquidity squeeze on various marketbased funding sources upon which it relied heavily.
Simulations carried out jointly by the FSA, the Bank of
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liquidity risks
Design and use of severe stress test scenarios
LPHI risks need to be more explicitly considered and
managed
Corporate governance
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bailed out.
Maintenance of an adequate level of liquidity, including
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