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

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.

Citation

Hall, M.J.B. (2008), "The sub‐prime crisis, the credit squeeze and Northern Rock: the lessons to be learned", Journal of Financial Regulation and Compliance, Vol. 16 No. 1, pp. 19-34. https://doi.org/10.1108/13581980810853190