Sunday, 18 November 2007

Money is no object for the bank of england

According to a story from Reuters, the Northern Rock disaster will continue indefinitely. The Bank of England will change the status of its emergency assitance loan to a loan term restructuring loan, as part of a wheeze to get out of EU state-aid retrictions.

It would be been better to declare this joke-bank bankrupt. However, good sense has long been in short supply at the FSA and the BoE.

The BoE will just keep pouring in money.

Northern Rock to have government loan extended: report

European Union guidelines currently block the bank from receiving state aid beyond February 17, but the newspaper said on Sunday that advisers to British Chancellor Alistair Darling had bowed to pressure from the firm and were working on a plan to change the status of the funding to 'restructuring aid'.

This would allow the Bank of England to continue funding Northern Rock indefinitely -- a move that could be crucial to any proposed takeover of the company. Northern Rock was forced to go to the Bank for emergency loans two months ago, as the global squeeze on credit markets caused its funding strategy to collapse.


Anonymous said...

This whole northern rock business is a scandal. The government can find billions to protect depositors and shareholders while pensioners get scammed with collaping share schemes.

Anonymous said...

What exactly is the BoE trying to do here? In the US the FDIC would have closed NR by now by either selling it to solvent bank or just paying off depositors from the insurance pool.

old bank supervisor guy said...

The US had a nasty experience about 15 years ago with Savings and Loan banks (basically local mortgage companies). Hundreds of them went bad after they gambled on interest rates.

Initially, the US authorities tried to keep them going through mergers. However, this strategy failed and then the authorities got ruthless. As soon as a S and L went bad, the authorities would come in and close em down. There were many cases of the supervisors coming into a bank on a friday evening and having closed it down by monday morning.

Ironically, this meant that the US became the world leaders on bank resolution procedures. Once the S and L crisis was over, many of these guys retired. Even today, you will find these guys acting as experts in bank resolution procedures in many emerging markets.

The key lesson was straightforward; if a bank is in trouble, close it as soon as possible.

Mark Stubbs said...

Wonder why Brown and Darling are prepared to put in £25 billion to keep NR going when the same government could not rescue Rover or Cammell Laird etc...
Well I can only guess it is because they want the fickle UK economy to continue a bit longer ?
The whole of the UK economy is based on borrowed money riding the back of crazy house prices - simple as that.
It annoys me when people say we are the Worlds 4th largest economy... well it certainly is not because we are a massive exporter is it... it is all froth and bubble - at least now some people are at last begininnig to realiase that the gravy train has finally hit the buffers !