United Kingdom and the credit
crunch.
by MEDIA CONTACT RESOURCES, INC.
Evidence that the liquidity crisis begun in mortgage markets in the
United States (US) has spread globally comes from the United Kingdom
(UK) where a high profile bank failure ignited considerable borrower
worry in September 2007. According to a September 20, 2007 analysis of
the crisis in The Economist (London) while liquidity is certainly a
problem, the organization of Britain's supervision of its banks was
largely to blame for the liquidity crisis actually escalating into a run
on a bank.
The collapsing bank (Northern Rock) was the UK's fifth largest
lender and had grown too fast, says The Economist, relying not on
depositor funds for growth but on money market transactions, which
exposed it unduly to mortgage credit risk originating in the US.
On September 17, 2007, the British Broadcasting Corporation (BBC)
said that the Bank of England (BoE) would provide funds to guarantee
depositor accounts. Ironically, it was the BoE announcement of support
that actually began the run on the bank with lines forming all over
Britain at Northern Rock branches as panicked consumers sought to
withdraw funds.
The BoE's October 29, 2007 report, "Lending to
Individuals: September 2007," does not show any unusual activity,
either plus or minus. The report says, "The twelve-month growth
rate was unchanged at 10.0% and the three-month annualized growth rate
rose by 0.1 percentage points to 9.6%." In terms of mortgages, the
report said, "The number of loans approved for house purchase
(102,000) was lower [in September 2007] than in August [2007] but those
for remortgaging (101,000) and other purposes (67,000) were higher than
in August [2007]." These statistics indicate little lasting damage
to consumer confidence in the UK banking system.
This is not to say, however, that consumer lending in the UK has
not suffered. Business Banking Review (London) said on October 24, 2007
that the consumer lending business overall was performing poorly.
"Lack of consumer confidence have [sic] particularly hampered new
business levels," said the Review, adding, "lending will be
affected in the short term as a result of the global credit
crunch."
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