Northern Rock Bank.
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...
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