The Collapse of Northern Rock Bank essay sample

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THE COLLAPSE OF NORTHERN ROCK BANK

Table of Content

The Key Reasons of the Collapse of Northern Rock

UK Regulators’ Performance in the Period Leading Up to the Collapse

Subprime Lending

Breakdown of Collective Action

Ethical Considerations

UK Regulators’ Response Policy to the Bank’s Collapse

Conclusion

References

The Collapse of Northern Rock

In September 2007, a large British bank, Northern Rock, found itself unable to meet its financial liabilities, since its reserves failed to meet the large-scale withdrawals of the bank’s customers, triggered by turmoil in the financial markets. In response, the Bank of England had to step in and offer an immediate state aid by nationalization of the bank’s assets. In this regard, there is a vital need to explore the key events and factors leading to the Northern Rock’s default. One of the most widely debated issues is whether the collapse of Northern Rock triggered a large-scale credit crunch in the UK banks (Shin, 2009; Donnelly, 2012), or Northern Rock was one of many other banks in the UK, which careless management in the pre-crisis period led to inevitable consequences (Crotty, 2009). An issue of the Government’s bail-out of the large distressed bank also raises a lot of controvercy. Whereas some studies indicate that nationalization of the Bank was the only way out (House of Commons, 2009); other research yielded quite opposing results that the burden of someone’s thoutless policy had not laid on the shoulders of taxpayers (Yan, 2013). In this regard, the main purpose of this study is to explore the major insights behind the collapse of Norhtern Rock.

More specifically, the following research questions are developed: What were the key events and factors leading to Northern Rock’s collapse? Drawing on the results from question 1, what is the UK regulators’ performance in the period leading up to the collapse? Based upon the insights from question 1 and 2, what was the UK regulators’ response policy to the bank’s collapse?This study extends the previous cohort of studies on the financial crisis of 2008 in the sense that it explores the chain of events and factors that led to the collapse of Northern Rock in 2007-2008. By gaining a deep understanding of the key reasons of Northern Rock’s default, the researcher will be able to show that the case of Northern Rock is not the same as with other banks that fell down in that time. Furthermore, over the course of the research, the auther will be able to critically evaluate the effectiveness of the British Government policy prior and in the aftermath of the crisis. Furthermore, this study is essential for increasing transparency and reducing uncertainty in the UK banking industry. The results of this study will be helpful to scholars and policy makers to reduce uncertainty, return customer confidence, and revive competition among financial institution in the UK.

The Key Reasons of the Collapse of Northern Rock

It is important to place a great deal of emphasis that the …

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