I can only note with sadness the nationalisation of Northern Rock – an outcome I regarded as fairly well inevitable due to the desperately botched process from the original announcement of problems (not even made by Northern Rock itself) through to the guarantee and on to the sale process.
As I said earlier – this should be an object lesson to governments not to get involved. I would also add to that and say that there are a lot of takeaways from this for banks – get the name risk procedures in place early and practice them often. Treat liquidity risk as, if anything, more important than credit risk. On a more personal note – make sure your risk management people are amongst your best. Pay them well.
4 comments
18 February, 2008 at 18:22
Andre
Hi Andrew,
If you write that the government should not have gotten involved what would have been the better outcome? Let the bank go bankrupt?
I believe this could have led to one of the worst financial crisis since decades. Imagine all the savers going to their bank (no matter which bank) and taking out their money….
I bet there would have been many bank collapses….
18 February, 2008 at 19:20
Mark Hill
I thought that liquidity was considered a bigger risk than credit…
19 February, 2008 at 13:32
Andrew
Andre,
I do believe it would have been better to let it go down. In the case of NR, the number of depositors was (comparatively) small and the government (and others) could have made it abundantly clear that this was an isolated case of a bank that did not manage its liquidity risk well.
All the depositors would have eventually got their money back and much of the shareholders funds would have also been realised through an orderly process.
I do not believe that people incapable of sorting out the good from the bad.
This is now going to drag through the courts for years.
20 February, 2008 at 05:29
André
Hi Andrew,
good point :) After reading many reports and seeing some great interview I accept that there would have been the possibility to save the money from the savers but still let Northern Rock go bankrupt or be saved from bankruptcy by a competitor…
Anyway I am glad I found your blog there are some very interesting articles on there.
Rgds
Andre