As a result of the non-conforming market turbulence affecting the global markets, the lender was forced to obtain an original £10 billion loan. However, following news of the loan, borrowers with the bank rushed to withdraw their money, taking out 8 per cent of the bank’s total deposits held.
Speaking to the Treasury Select Committee, Adam Applegarth, chief executive at Northern Rock, stressed that the lender could do nothing to avert the crisis. He said: “What severely hammered us was the retail run. It caused us immense difficulties.”
He added that as a result of the BBC revealing the emergency loan to the bank, the bank branches had experienced ‘consumer panic,’ which had impacted on the bank.
He also suggested that the speed of change in the market could not have been expected, but admitted that the lender’s business model made it more susceptible to market tremors. “The fundamental cause was the speed and duration, and the global nature of the liquidity freeze – heightened for us by the fact we didn’t have access to the same type of borrowing facilities available to banks in the US and from the ECB.”
Speaking to the committee, Northern Rock also confirmed that it had borrowed £13 billion from the Bank of England, and in an effort to quell the uncertainty within its own business practices and within the wider market, had reined in its mortgage offers, scrapping over two-thirds of its current range.
get the daily news delivered to your inbox
register for the next forum
find the latest industry jobs
