Northern Rock: One year later
By Ian Dunt
It’s been one year since the government announced its plan to nationalise Northern Rock and the British political landscape is now unrecognisable from what came before.
To read analysis of bank nationalisation click here.
To see a timeline of the financial crisis since the nationalisation click here.
Alistair Darling announced the decision last year, with emergency legislation introduced to parliament the following day, after the markets had opened.
At 00:01 GMT on February 22, 2008 the bank was taken into state ownership, with neither of the final two unsuccessful bids to take it over – from Virgin and an in-house management team – deemed able to offer the taxpayer value. Both were criticised for leaving the government with all the risk and the private sector with all the profits.
The decision to nationalise followed liquidity support from the government, itself a reaction to the run on the bank prompted by media reports of its imminent collapse.
The bank is now managed ‘at arms length’ through UK Financial Investment Ltd.
The Novocastrian lender’s plans to repay government debt within four years appeared firmly on-track, with repayments currently ahead of target, partly as a result of staff reduction.
Some analysts say that set of priorities is unhelpful, however, with claims that loan repayments are sucking up billions of pounds out mortgage the market just when wholesale funding has already dried up.
However, the chancellor has now slowed that down, arguing it makes little sense to send borrowers away from Northern Rock with the UK mortgage market so drained.
Some 40 per cent of mortgage lending before the crisis came from outside the UK – and with Icelandic, Irish and US lenders disappearing, the Rock found itself with a new role.
And there are signs of increased public confidence, with a small surge in the number of new accounts being opened. The perception of a government safeguard against failure invariably helped with this – especially as Icelandic banks tumbled.
But Northern Rock was only the beginning of a failure which ended up taking half of Britain’s banking sector with it.
The government now has a stake in four banks – Northern Rock, the combined HBOS and Lloyds TSB group, Bradford & Bingley, and Royal Bank of Scotland. It is a situation analysts would have considered impossible just twelve months ago.
Now, with the public clamour against bonuses and executive pay getting louder by the day, and banks refusing to heed government calls for them to lend more, full-scale nationalisation of most of Britain’s banking sector is a distinct possibility.
