United Kingdom and the credit crunch.


Evidence that the liquidity crisis begun in mortgage markets in the United States (US) has spread globally comes from the United Kingdom (UK) where a high profile bank failure ignited considerable borrower worry in September 2007. According to a September 20, 2007 analysis of the crisis in The Economist (London) while liquidity is certainly a problem, the organization of Britain's supervision of its banks was largely to blame for the liquidity crisis actually escalating into a run on a bank.

The collapsing bank (Northern Rock) was the UK's fifth largest lender and had grown too fast, says The Economist, relying not on depositor funds for growth but on money market transactions, which exposed it unduly to mortgage credit risk originating in the US.

On September 17, 2007, the British Broadcasting Corporation (BBC) said that the Bank of England (BoE) would provide funds to guarantee depositor accounts. Ironically, it was the BoE announcement of support that actually began the run on the bank with lines forming all over Britain at Northern Rock branches as panicked consumers sought to withdraw funds.

The BoE's October 29, 2007 report, "Lending to Individuals: September 2007," does not show any...

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