9.6 |
27 June 2007 to April 2008
From
September 2007, the global financial crisis became a major focus
for the UK
Government.
Key events as the crisis intensified are described
below.
On 9 August
2007, French bank BNP Paribas told investors that they would be
unable to
withdraw
money from two of its funds because it could not value the assets
in them owing
to a
“complete evaporation of liquidity” in the market. This triggered a
sharp rise in the cost
of credit,
and alerted the world to the start of the credit
crunch.162
On 13
September, BBC News reported that Northern Rock had been granted
emergency
financial
support by the Bank of England. The following day, customers of the
bank
withdrew
£1bn, the biggest run on a British bank for more than a
century.
On 21 April
2008, the Bank of England announced a £50bn plan to help banks by
allowing
them to
swap high risk mortgage debts for secure government
bonds.
At the end
of the month, the first annual fall in UK house prices for 12 years
was recorded
by
Nationwide.
On 7
September, US mortgage lenders Fannie Mae and Freddie Mac were
taken
over by the
US Government. Together they had lost approximately US$14bn over
the
The
management of both companies was to be replaced, and they were to
be given
access to
additional funding. Both were to be administered by the Federal
Housing
Finance
Agency until their long-term future was decided.
President
Bush said: “Putting these companies on a sound financial footing,
and reforming
their
business practices, is critical to the health of our financial
system.”
On 16
September, Lehman Brothers – a major US investment bank – filed for
chapter 11
bankruptcy
protection, which gives a company time to devise a pan to re-pay
its
creditors.164
The BBC
reported:
“Unwinding
Lehman’s complex deals will take months if not years. During that
time
the global
financial system will be snarled up. Many banks won’t know for sure
how
much they
are exposed to Lehman, and will have difficulty freeing up the
money in
those
deals.
“This in
turn is likely to intensify the credit crunch, with potentially
dire consequences
for
businesses and consumers.”165
On 3
October, the US House of Representatives passed a US$700bn plan to
rescue the
162
BBC
News, 7 August
2009, Timeline:
Credit crunch to downturn.
163
BBC
News, 7
September 2008, US takes
over key mortgage firms.
164
BBC
News, 16
September 2008, Lehman Bros
files for bankruptcy.
165
BBC
News, 16
September 2008, Q&A:
Lehman Brothers bank collapse.
166
BBC
News, 7 August
2009, Timeline:
Credit crunch to downturn.
245