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.
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.
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.
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?