Bank of England's incompetent handling of Northern Rock
"If you can keep your head when all around you have lost theirs,
then you probably haven’t understood the seriousness of the
situation.”
Could there be a more appropriate 'David Brent' quote to sum up the
Bank of England's witless response to the situation at Northern Rock
- 6 weeks ago the B.of E. were informed of NR's problems and we are
told that there were even offers on the table (notably Lloyds TSB)
to take them over.
How could the B.of E not have understood the 'seriousness of the
situation' - you would think that on day 1 of the B.of E.
'training course' the subject of the importance of banking
confidence would have cropped up. Failing that, you would at least
expect they could add up - the crisis in the credit market, where NR
gets the bulk of its funding, virtually dries up (NR receives a
relatively small amount of money from savers) whilst on the other
side it has leant £113 billion!
Never mind the B.of E falling to do a great deal in the last 6 weeks
- they've actually had months, if not years to have seen the warning
signs. In the first 6 months of this year the NR were responsible
for nearly 20% of new mortgages - this was a small regional Building
Society who expanded away from the boring, steady business of
lending out their deposits (from savers) to the much more exciting
stage of the money markets. From just 72 branches (and of late the
Internet) they've manage to lend out £113 billion - it's not quite
'sub-prime' on the American scale but there has to be some slippage
in the quality of the loans?
Leaving aside the issue of lax regulation, if someone offered to
bail-out NR, then the B.of E. should have bitten their hand off. The
BBC is reporting that potential NR buyers were
concerned about doing such a big deal amid turmoil in money markets
when it was difficult and expensive to raise money. Fair enough,
then the B.of E should have offered guarantees
of funding for the interested parties. Perhaps afraid that this
would send out the wrong signals the B.of E did nothing
thereby delaying and ultimately magnifying the problem.
City 'watchdog' (sic) the Financial Services Authority (FSA), are
saying they are confident that the Northern Rock is solvent and that
savers could continue to deposit and withdraw funds... of course
they would say that. Some observers are trying to talk up the fact
that only£1.5 billion has been withdrawn so far - this would
surely be a lot more if there weren't just 72 branches and if the
website worked! If it was the choice of getting your money out
quick, or believing the words of NR spokesmen, The FSA, The
Government or the B.of E then I know what I would do!
Again, the warning signs are there for the stock market, housing
market and economy - for more comment please read our July article
Is the housing market bubble about to burst?
Sept 16 2007, © DCE
Back to news index or
home page
Debt Cutting Expert is an independent advisory website based on journalistic research and does NOT constitute financial advice. Any information should be considered in regard to specific circumstances. All suggestions are followed at your own risk and should be checked-out with your own research.
privacy policy |
accessibility | contact
| about us
|
|
|
