The paper "Regulations and Supervision of Northern Bank" is a wonderful example of a case study on finance and accounting. The northern bank emerged in 1809 originated from Belfast based bank known as Northern Banking Partnership. Northern Bank has emerged over the passing years by performing consistently and meeting the changing needs of customers. Brief reasons leading to the Northern Rock Bank crisis are that they started giving excessive lending which was the important most factor of its downfall. The bank lent huge deposits which were more compared to the deposits they got from their depositors.
The second reason was that there was liquidity mismatch which means that when Northern Bank gave the high amount of deposits to the lenders they did not have a sufficient deposit base to support their lending’ s which encouraged them into borrowing money from the money market. The third factor was Subprime lending which means that there was a direct exposure of Northern Bank in subprime mortgages which was eventually very less but after some time the mortgages started to climb high in the market.
When the U. S subprime crises got to hold and spread throughout the market, banks feared lending mortgages from one to another. The fourth reason for downfall is the global macroeconomic imbalance which means that there was instability in monetary terms and accounts deficits everywhere in the world especially the United States and other European countries. The fifth reason was the increasing intricacy of the securitized credit model, which has lower risk-free interest rates compared to other bank products leading to an intense search by customers for higher yield and faster growth in the complexity of financial products.
To prevent their collapse Northern Bank guaranteed the deposits to alarmed savers who were lined up to withdraw their funds. A week before the crisis provoked, Northern Rock had come close to be acquired by Lloyds TSB, but there was no agreement because of funding problems, Lloyds could not get an agreeable committal of funding support from the Bank of England. When the crisis occurred, Northern Bank found out that they could not secure the cheap funds which were required and at that time credit elsewhere was not available or was very expensive.
People rushed to withdraw their savings before the government abides guarantee on savings when the first emergency loan was announced by Bank of England.
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