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British BankingContinuity and Change from 1694 to the Present$
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Ranald C. Michie

Print publication date: 2016

Print ISBN-13: 9780198727361

Published to Oxford Scholarship Online: December 2016

DOI: 10.1093/acprof:oso/9780198727361.001.0001

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Catastrophe and Convalescence, 2007–2015

Catastrophe and Convalescence, 2007–2015

(p.237) 9 Catastrophe and Convalescence, 2007–2015
British Banking

Ranald C. Michie

Oxford University Press

Northern Rock, a small building society converted to a bank in 1997, lent aggressively, repackaging the loans as securities, selling them to investors, using the proceeds to make more loans. In 2007 it was unable to re-finance its lending commitments and meet withdrawals. When depositors knew the bank was in financial difficulty, they panicked. Since 1997, no institution had prime responsibility to intervene so as to prevent the problems at one bank destabilizing the entire banking system. The government was forced to intervene to guarantee the savings of all depositors. These problems were symptoms of the general risk-taking within the British banking system, further exposed in 2008 among the building societies that had converted into banks and then the two Scottish banks. The Bank of England intervened, helped by the experience gained in 2007. Overall responsibility for the British banking system was then restored to the Bank of England.

Keywords:   Bank of England, Northern Rock, building societies, Scottish banks, depositor panic

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