Financial regulation and pros and cons of using bad banks and tax payer’s money.|
The offer of financial rule in condition such as of Northern Rock. The aims of financial regulators are usually:
* To prevent cases of market manipulation, such as insider trading * To ensure competence of providers of financial services * To protect clients, and investigate complaints
* To maintain confidence in the financial system
* To reduce violations under laws
* Damage done to the bank before the run by its retail depositors. * Informed FSA 08-13-07 of funding problems. BOE was informed on 08-14-07 * Resolve issue by take over another bank. Failing to find a buyer. * became public 09-14-07 depositor.
* Short term funds now dried up. Wholesale funding short and medium mixed terms * Lenders in the catipal market deny to lend to the bank who had soild asset books * Mortgage bank nature of the bank
* Building society float shares on stock market
* Balance sheet was far branch based retail deposits
* Not branch based deposit by post and telephone high deposit interest rate. * Cove bonds long term liabilities illiquid-
* Not unique UK banks growing use of non retail funding.
* Rely on funds off-balance sheet.
* Securitization downfall-medium to long term manturity /average over one year. Granite had longer maturies , float rate with special purpose entities. * Traditional bank holds short-term liabilities, in the form of deposits, and uses them to ﬁnance longer-term, less-liquid assets, such as loans. * Use repos, high leverage institution
* faced with a giant margin call, where lenders demanded higher haircuts. The usual way to meet a margin call is to sell some assets to raise the cash. But the assets of Northern Rock were illiquid long-term mortgages, so that it could not meet those margin calls. The inability to meet this margin call led to Northern Rock’s...