New Financial Crisis

Northern Rock went under because they used borrowed money to fund lending, and when borrowing dried up they had no liquidity.

SVB went under because they used savers' money to fund lending, which is sensible on thr surface, but invested money they couldn't lend in high-yielding Treasury Bonds. The problem was that as interest rates went up, the price of those bonds went down, leaving them potentially unable to repay customer deposits in full. That's not necessarily a problem under normal circumstances, with withdrawals at normal levels.

But many of their customers had deposits over and above the $250,000 guaranteed by the US Federal Reserve (or whatever their equivalent to our FSCS). Once word got out they might be in trouble, those customers with unprotected deposits rushed to get their money out, which exacerbated the liquidity issue.
 
Prestwich_Blue said:
Northern Rock went under because they used borrowed money to fund lending, and when borrowing dried up they had no liquidity.

SVB went under because they used savers' money to fund lending, which is sensible on thr surface, but invested money they couldn't lend in high-yielding Treasury Bonds. The problem was that as interest rates went up, the price of those bonds went down, leaving them potentially unable to repay customer deposits in full. That's not necessarily a problem under normal circumstances, with withdrawals at normal levels.

But many of their customers had deposits over and above the amounts guaranteed by the US Federal Reserve (think that's about $125,000). Once word got out they might be in trouble, those customers with unprotected deposits rushed to get their money out, which exacerbated the liquidity issue.
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An interesting aspect of Northern Rock was that the City spotted it ages before it crashed. Their share price went steadily downhill for 12 months, losing 95% of its value and still people put money on deposit there.
 
Prestwich_Blue said:
Northern Rock went under because they used borrowed money to fund lending, and when borrowing dried up they had no liquidity.

SVB went under because they used savers' money to fund lending, which is sensible on thr surface, but invested money they couldn't lend in high-yielding Treasury Bonds. The problem was that as interest rates went up, the price of those bonds went down, leaving them potentially unable to repay customer deposits in full. That's not necessarily a problem under normal circumstances, with withdrawals at normal levels.

But many of their customers had deposits over and above the $250,000 guaranteed by the US Federal Reserve (or whatever their equivalent to our FSCS). Once word got out they might be in trouble, those customers with unprotected deposits rushed to get their money out, which exacerbated the liquidity issue.
Click to expand...
Lehmann Brothers and Bear Stearns - fuck, where do you start? Bit of a perfect storm those ones, but the 'too big to fail' mentality, short-selling and sub- prime lending permitted by light touch (in some cases nearly non- existent) regulation, political point scoring between the two main US parties and the refusal of several countries FSAs or equivalents (including the UK, SK and Australia) to allow their institutions to get involved in what they mistakenly viewed as a solely American problem all massively contributed.
 
KS55 said:
An interesting aspect of Northern Rock was that the City spotted it ages before it crashed. Their share price went steadily downhill for 12 months, losing 95% of its value and still people put money on deposit there.
Click to expand...
That's not quite true. NR was praised as an innovative lender and even in August 2007, the FT and other commentators, and many analysts, were saying that it was likely to be a short term problem, with NR squeezed a bit till the markets settled down again. Bank shares were affected across the board when the sub-prime market issues surfaced, although NR's business model made them more vulnerable to volatility in the bank-to-bank lending market.

One month later, the shit hit the fan.
 
Prestwich_Blue said:
That's not quite true. NR was praised as an innovative lender and even in August 2007, the FT and other commentators, and many analysts, were saying that it was likely to be a short term problem, with NR squeezed a bit till the markets settled down again. Bank shares were affected across the board when the sub-prime market issues surfaced, although NR's business model made them more vulnerable to volatility in the bank-to-bank lending market.

One month later, the shit hit the fan.
Click to expand...
I work in financial services like you PB and the conversations we've had with alot of the lenders we introduce clients to is that they are worried about market share as they have not lent enough money since the pandemic. UK banks have much more liquidity than they did pre the 2008 squeeze but government debt levels should be a concern for us all in the next number of years.
 
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