The Crunch: The Scandal of Northern Rock and the Escalating Credit Crisis
By the Daily Mail City editor; Northern Rock as the opening of the crisis.
Summary
Alex Brummer, city editor of the Daily Mail, wrote this quickly after the Northern Rock failure of September 2007, which produced the first run on a British bank in over a century.
The account covers the bank's business model: it originated mortgages in volume and funded them not through retail deposits but through securitisation and wholesale borrowing, which meant it needed continuous access to funding markets to survive. When those markets closed in August 2007 following the American subprime deterioration, the bank had no alternative funding, and its request for emergency support from the Bank of England became public, which produced queues at branches. Brummer covers the tripartite regulatory arrangement between the Treasury, the Bank of England and the Financial Services Authority, and the confusion about which body was responsible; the failure of the attempted private sale; and the nationalisation in February 2008.
The book was written at speed and reflects it. It predates the parliamentary inquiries, the Financial Services Authority's own review of its supervision, and the subsequent literature. Readers wanting a fuller account should go to the edited academic volume by Bruni and Llewellyn. Brummer's contribution is a contemporaneous narrative and a clear explanation of why a bank with performing assets can fail through funding alone.
Key takeaways 7
- Northern Rock funded mortgage lending through securitisation and wholesale borrowing rather than through retail deposits.
- A bank with performing assets fails when its funding markets close, because it cannot roll its liabilities.
- The bank's request for emergency support became public, which converted a funding problem into a depositor run.
- Britain's tripartite regulatory arrangement left no single body clearly responsible for acting.
- Deposit insurance arrangements that did not guarantee full balances gave depositors a rational reason to queue.
- The failure of a private sale left nationalisation as the only remaining option.
- Brummer wrote before the official inquiries, so the account of supervisory failure is incomplete.
Who should read it
Readers wanting a contemporaneous narrative of the first British bank run in over a century and a clear explanation of wholesale funding risk.
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