Monday, 17 September 2007

Housing crash - other banks being investigated

It seems that the Northern Rock wasn't the only bank who was playing the UK mortgage lottery; Bradford and Bingley, the Alliance and Leicester and Paragon are now being investigated by the Financial Services Agency to see whether each bank has sufficient funds to cover its short term debts.

Here is what the Daily Mail had to say:

Mortgage lenders have been ordered to prove they are solvent amid fears of a Northern Rock domino effect. The Financial Services Authority has launched an investigation to discover which other banks could be toppled, the Daily Mail has learned. Those considered at risk by the City watchdog have been challenged to show they are secure.

One insider said: 'The banks have been told to open their books. They need to prove they have stress-tested their finances to ensure they are prepared for the risks inherent in these market conditions.'

It is understood that there is particular focus on Bradford & Bingley, the Alliance & Leicester and Paragon, all three of which have high loans-to-savings ratios: they lend out far more than they take in deposits.

Banks will fail the FSA stress test if they cannot show they have access to sufficient funds to cover imminent debt repayments or enough to continue offering loans.


Phil said...

Excellent blog, Alice. It makes for grim but important reading. I would be surprised if NR was the only major mortgage lender in the UK to overextend itself - there is a lot more pain and drama to come.

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