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Extended-form Case Study

Strategic risk management: the case of Northern Rock

Published on September 26, 2018   21 min

A selection of talks on Finance, Accounting & Economics

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0:00
Hello, my name is Pat McConnell from Macquarie University Applied Finance Centre and today I'm going to talk about the topic of strategic risk management, the case of the Northern Rock bank.
0:12
On Friday the 14th of September 2007, the BBC reported that the Northern Rock PLC had asked for, and received, emergency financial support from the Bank of England. Though far from standard practice, Northern Rock's request for temporary liquidity support was rare, but it was not unheard of. What was unusual, however, were the television pictures of the Northern Rock depositors besieging the bank on the day of the formal announcement, and continuing to do so over the weekend despite calming words from the bank's management. Over the weekend, long queues began to form outside some of Northern Rock's branches, the bank's website collapsed and its phone lines were reported to be jammed. This was the first 'run on a bank' in the UK since 1878.
0:60
Forced to counter the leakage of funds and to calm the markets, on the following Monday the UK Chancellor of the Exchequer announced the introduction of a government guarantee of deposits for the bank. In fact, the run had only lasted a weekend. After a few months of frantic activity to save it, Northern Rock was taken into public ownership in February 2008. It was the largest failure of a bank in the UK up to that point, but worse was to come some months later in the GFC. For many years, Northern Rock had been one of the most admired second-tier banks in the UK and was consistently profitable. The bank had a very sound credit-book with very few subprime loans. What had gone so disastrously wrong?

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Strategic risk management: the case of Northern Rock

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