Ad-Hoc Emergency Liquidity
United Kingdom: Northern Rock Emergency Liquidity Program, 2007
Announced: September 14, 2007
Purpose
To help the bank fund its operations amid ongoing market stress and, later, to enable it to explore strategic options
Key Terms
- Announcement DateSeptember 14, 2007
- Operational DateSeptember 14, 2007
- Termination DateApril 24, 2019
- Legal AuthorityMemorandum of Understanding established in 1998 and updated in 2006
- AdministratorBank of England and HM Treasury
- Peak AuthorizationSeptember 14 facilities: Limited only by the bank’s available collateral
- Peak OutstandingGBP 28.5 billion was the highest figure reported, for December 31, 2007
- CollateralSeptember 14 facilities: unsecuritized residential mortgage loans, various securities; October 9 facilities: all assets of Northern Rock
- Haircut/RecourseHaircuts for September 14 facilities
- Interest Rate and FeesUnknown, premium to BoE’s official rate (then 5.75%)
- TermUnknown
- Part of a PackageHM Treasury guaranteed all deposits and a number of other liabilities
- OutcomesIn 2012, HM Treasury sold the good bank to Virgin Money for GBP 747 million; in 2016, the NAO estimated a net gain of GBP 5 billion to the government after the intervention in Northern Rock, although not on a net present value basis
- Notable FeaturesLeak before announcement, deposit run after
Northern Rock plc was a bank in the United Kingdom (UK) that experienced rapid growth from 1998 to 2007. The bank was a large issuer of UK residential mortgage-backed securities. Its funding was primarily wholesale as its retail deposit growth had not kept up with its asset growth. By August 2007, Northern Rock’s credit default swap spreads were widening and its share price falling as conditions deteriorated in the markets on which it relied for short-term funding. To meet the bank’s substantial liquidity needs, the Bank of England (BoE) announced on September 14, 2007, that it would extend an emergency liquidity facility to Northern Rock “against appropriate collateral and at an interest rate premium,” without providing further details. The announcement of the facility and the rumors in the days before led to a deposit run and prompted Her Majesty’s Treasury (HM Treasury) to extend various guarantees to Northern Rock. Northern Rock drew on the BoE’s liquidity facilities almost immediately as depositors withdrew 4.6 billion pounds sterling (GBP) within days. Northern Rock reported outstanding emergency lending of GBP 28.5 billion at the end of December 2007. In February 2008, HM Treasury took over Northern Rock. In August 2008, HM Treasury assumed from the BoE the remaining emergency loan to Northern Rock, which had fallen to GBP 14.5 billion. In 2010, the government split Northern Rock into good and bad banks, Northern Rock plc and Northern Rock Asset Management plc, respectively. The government sold the good bank to Virgin Money in January 2012 for GBP 747 million. In 2016, the National Audit Office estimated a net gain of GBP 5 billion to the government after the intervention in Northern Rock, although not on a net present value basis.
Sources: Bloomberg: World Bank Deposit Insurance Dataset; World Bank Global Financial Development Database.
The UK House of Commons Treasury Committee wrote a report in 2008 on Northern Rock, titled “The Run on the Rock,” offering a number of conclusions and recommendations. The report expresses surprise that the BoE and Northern Rock did not engage in high-level discussions about liquidity support before September 10, 2007 (House of Commons 2008). The report also says the chancellor’s decision to provide the emergency liquidity to Northern Rock was “the right one,” since it helped protect the bank and reduce the risk of contagion throughout the UK banking system (House of Commons 2008).
The BoE’s 2008 annual report said the announcement of the September 14 facilities confirmed the extent of the issues at the bank and led to a retail deposit run (BoE 2008c). The “Run on the Rock” report said the tripartite authorities (BoE, HM Treasury, and FSA) did not act quickly enough to finalize and announce the emergency liquidity after deciding to proceed with it. The failure to make the announcement earlier in the week or have adequate plans for handling the press and public interest in the emergency liquidity resulted in “the worst of both worlds” (House of Commons 2008). The BBC reported the emergency liquidity assistance to Northern Rock on the evening of September 13 (BBC 2007). The official announcement from the BoE came the following day (BoE 2007c). The “Run on the Rock” report says that although there was a reasonable prospect that the announcement of the emergency liquidity would help reassure depositors, the leak of the Northern Rock facility and the negative market reaction to Barclays’s use of the BoE’s standing emergency lending facility should have prompted actionFNBy late August, the financial press reported that Barclays had borrowed twice from the BoE’s standing emergency lending facility in the previous two weeks, totaling hundreds of millions of British pounds sterling (Ferreira-Marques 2007; Seager, Elliott, and Kollewe 2007). (Ferreira-Marques 2007; House of Commons 2008; Seager, Elliott, and Kollewe 2007). The report additionally says that it was “unacceptable” that the tripartite authorities had not agreed in advance to the terms of the deposit guarantee “to allow a timely announcement in the event of an adverse reaction to the [BoE] support facility” (House of Commons 2008).
In response to the chancellor’s announcement of emergency liquidity support, Moody’s also downgraded Northern Rock’s BFSR from B- to C- on September 17, 2007 (Moody’s 2007).
In May 2012, the National Audit Office (NAO) published a report on the resolution of Northern Rock. In that report, the NAO predicts that the government would eventually recover all losses and funds invested in Northern Rock. However, the NAO estimates that on an economic basis, taking into account the net present value of cash flows, the government would realize a total loss of GBP 2 billion from the overall rescue of Northern Rock (House of Commons 2012; NAO 2012).
A follow-up report by the House of Commons Public Accounts Committee says:
The lack of people with the right skills meant that the Treasury could not reach a quick decision on how to save Northern Rock. The Treasury told us that, in hindsight, it should have nationalized the bank faster but that it spent five months until September 2008 ‘trying to find ever more sophisticated devices, in effect, to bribe private companies to buy it.’ Even with a taxpayer guarantee on the bank’s liabilities the Treasury did not find a willing buyer… and a cost for the taxpayer became difficult to avoid. (House of Commons 2012)
Likewise, in testimony to the Public Accounts Committee in September 2012, UK Financial Investments Secretary Nick Macpherson said:
. . . the Treasury was slow off the mark in terms of addressing the problem. You will recall that, from the point of the run on Northern Rock in September 2007 through to nationalization, there was a five-month period of drift. That, I think, made it quite likely that we would lose money on Northern Rock in a way that certainly was not inevitable at that point when we took a majority holding in RBS. (House of Commons 2012)
Background
This case study is about ad hoc emergency liquidity assistance provided to Northern Rock plc.
Northern Rock grew quickly in the years leading up to the Global Financial Crisis of 2007–09 (GFC), with total assets rising from 17.4 billion pounds sterling (GBP) in June 1998 to GBP 113.5 billion (USD 227 billion)FNAccording to the Bank for International Settlements, USD GBP 1 = USD 2.00 on June 29, 2007.
in June 2007. Its balance sheet growth far outpaced retail deposits, which grew from GBP 10.4 billion to GBP 24 billion over the same period (Shin 2009). Northern Rock relied heavily on short-term wholesale funding. Northern Rock’s share price started falling in early 2007 as concerns surfaced around earnings and the ability of the bank to grow as short-term wholesale funding costs rose. By August 2007, Northern Rock’s credit default swap spreads were widening, and its share price was falling as the broader credit and money market conditions deteriorated (BoE 2007d).
The short-term funding and interbank lending markets on which Northern Rock relied froze on August 9, 2007 (Shin 2009). On August 14, 2007, United Kingdom (UK) authorities discussed the potential for liquidity issues at Northern Rock should the bank be cut off from the securitization and covered bond markets or should it face difficulties in maintaining money market funding (BoE 2007d). On August 16, then–Northern Rock Chair Matt Ridley discussed the “theoretical” possibility of emergency support with the governor of the Bank of England (BoE). Northern Rock said that it needed emergency support only as a “backstop” and perhaps would not have to use the facilities (House of Commons 2008). However, by early September, Northern Rock could not access longer-term funding and was able to roll over its debt only at ever shorter maturities (BoE 2007d; Northern Rock 2008a). During the week of September 10, Northern Rock officially requested help from the BoE (BoE 2007d; Northern Rock 2008a).
Before approving the bank’s request for aid, however, the UK Financial Services Authority (FSA) and the BoE were required to respectively assess the systemic risks the failure of Northern Rock could pose, under the tripartite arrangements among the FSA, BoE, and Her Majesty’s Treasury (HM Treasury). The tripartite arrangements also required the FSA to evaluate the bank’s solvency. The FSA conducted this analysis and concluded that Northern Rock was solvent, had above the minimum amount of regulatory capital, and had a quality loan book (BoE 2007d). On September 14, 2007, Northern Rock issued a warning that its annual profit would be about 20% below the forecast of GBP 647 million, and its share price fell nearly 25% (Reuters 2007c). The same day, the BoE, along with the FSA and HM Treasury, issued a press release announcing the initial liquidity facility for Northern Rock and the BoE’s willingness to lend to other institutions facing short-term liquidity difficulties (BoE 2007c; BoE 2007d). The British Broadcasting Corporation (BBC) reported the BoE’s decision to provide emergency liquidity at 8:30pm on September 13, the night before the official announcement (House of Commons 2008).
The rumors and the official announcement of the liquidity facility confirmed that Northern Rock was facing substantial difficulties and led to a retail deposit run (AFP 2007; BoE 2007d). Within a few days, customers withdrew GBP 4.6 billion in deposits (House of Commons Public Accounts Committee 2009). Lines formed outside the bank’s branches, its website crashed, and its phone lines reportedly jammed (AFP 2007; House of Commons 2008). Standard and Poor’s (S&P) downgraded Northern Rock from A to A also on September 14, 2007 (Patrick 2007). On September 17, 2007, the chancellor of the Exchequer, who heads HM Treasury, announced that the government would fully guarantee “all existing deposits” at Northern Rock (BoE 2007d; HMT 2007). Also on September 17, Moody’s Investors Service downgraded Northern Rock’s Bank Financial Strength Rating (BFSR) from B- to C- in response to the announcement of emergency liquidity support (Moody’s 2007). Over the next few days, HM Treasury clarified that the guarantee covered existing and renewed unsecured wholesale funding as well (BoE 2007d; Northern Rock 2008a). On October 9, HM Treasury extended the guarantee to also cover retail deposits made after September 19 (BoE 2007d).
Also on October 9, 2007, the BoE granted amended liquidity facilities to Northern Rock that provided unlimited liquidity secured by all of Northern Rock’s assets. The BoE received an indemnity from HM Treasury protecting the central bank from losses on any additional lending (BoE 2007d). The highest level of lending that the bank reported was GBP 28.5 billion at the end of December 2007; data on usage during the year are not available (Northern Rock 2008a).
The government nationalized Northern Rock on February 22, 2008, whereby the Treasury Solicitor on behalf of HM Treasury took the bank into public ownership (BoE 2008b). On August 28, 2008, HM Treasury assumed from the BoE its outstanding GBP 14.5 billion loan to Northern Rock. On January 1, 2010, the government split the bank into two separate entities: Northern Rock plc (good bank) and Northern Rock Asset Management plc (NRAM, the bad bank). NRAM then took the GBP 14.5 billion outstanding on the facilities, at this point owed to HM Treasury (Plenderleith 2012). HM Treasury also committed to converting up to GBP 1.6 billion of its outstanding loan to capital so that NRAM could meet regulatory requirements, if necessary (UKAR 2014).
In November 2008, the government created UK Financial Investments Limited (UKFI) in response to the GFC to manage the government’s investments in UK financial institutions (UKFI 2009).
On October 1, 2010, HM Treasury created UK Asset Resolution Limited (UKAR) by bringing together its stakes in Bradford and Bingley plc (B&B) and NRAM for resolution. UKAR was a holding company under HM Treasury. UKFI managed HM Treasury’s shareholding in Northern Rock, B&B, Royal Bank of Scotland (RBS), and Lloyds Banking Group (UKAR 2017).
On November 17, 2011, HM Treasury announced the sale of Northern Rock plc to Virgin Money for GBP 747 million in cash with the potential of achieving GBP 1 billion in total; the sale closed on January 1, 2012 (HM Treasury 2011; Plenderleith 2012).
In November 2015, UKAR closed the sale of a portfolio of NRAM’s assets for GBP 13.3 billion to a consortium led by the US private equity firm Cerberus Capital Management LP (Edmonds 2017; NAO 2016).
On April 24, 2019, UKAR sold NRAM’s remaining residential and unsecured assets for GBP 4.9 billion to Citigroup, enabling the repayment of its remaining GBP 2 billion owed to HM Treasury (UKAR 2019).
Figure 1 shows a timeline of assistance to Northern Rock.
Figure 1: Timeline of Assistance to Northern Rock
Source: Authors’ analysis.
Key Design Decisions
Purpose1
Emergency Liquidity Facilities
The BoE extended emergency liquidity support to Northern Rock on September 14, 2007, to help the bank fund its operations (BoE 2007c). Before the crisis, Northern Rock had a funding structure that was heavily reliant on its GBP 50 billion program called Granite, whereby the bank raised wholesale funding secured by its mortgage loans held in special purpose entities (BoE 2007d; Northern Rock 2009; Patrick 2007). At the end of 2006, 89.2% of the bank’s assets were residential mortgages, and its liabilities were largely wholesale funding sources (House of Commons 2008). By August 2007, Northern Rock’s credit default swap spreads were widening and its share price falling as broader credit and money market conditions deteriorated. By mid-September, Northern Rock was able to roll over debt but only at shorter and shorter maturities (BoE 2007d). The general tightening of longer-term liquidity, the shutdown of the securitization and medium-term funding markets, and pressures in short-term wholesale markets posed problems for funding Northern Rock’s warehouse (that is, mortgage loans preparing for securitization). Thus, Northern Rock approached the BoE for liquidity support during the week of September 10, 2007 (BoE 2008b; Northern Rock 2008a). Figure 2 shows the composition of Northern Rock’s liabilities in December 2007 compared to June 2007.
Figure 2: Northern Rock’s Liabilities before and after the Run, GBP billions
Source: Shin 2009.
Specifically, within the broader category of wholesale funding, Northern Rock experienced runs on its wholesale deposits (banks and certificates of deposit [CDs]) and “other debt securities” (see Figure 3) (Northern Rock 2008a). Northern Rock did not have repurchase agreements (repos) before its repos from the BoE (Northern Rock 2008a).
Figure 3: Northern Rock’s Wholesale Funding at Year-End 2006 and 2007
(GBP millions)Note: MTNs refers to medium-term notes. Northern Rock also said in 2008 that it was worried about the reopening of medium-term and securitization markets.
Sources: Northern Rock 2008a; Northern Rock 2008b; authors’ analysis.
On September 14, 2007, the chancellor of the Exchequer authorized the liquidity facilities on the basis of recommendations by the BoE governor and the FSA chairman. For the tripartite arrangement, the BoE and FSA had to make separate financial stability assessments, and both judged Northern Rock to be a sufficiently serious threat to the financial system through contagion. The FSA said it viewed Northern Rock as solvent, with regulatory capital above the required level and a quality loan book; the chancellor used this assessment in his decision to authorize the liquidity facilities (BoE 2007c; BoE 2007d).
On September 14, the BoE released a tripartite statement by the HM Treasury, the BoE, and the FSA confirming a liquidity facility for Northern Rock and the BoE’s willingness to lend to other institutions facing short-term liquidity difficulties (BoE 2007a; BoE 2007d). The announcement confirmed to the public the extent of the issues at Northern Rock and led to a retail deposit run (BoE 2008c). Northern Rock intended to have the facility serve as a backstop that it would not need to use, but the bank had to draw on the facilities almost immediately as depositors fled (House of Commons 2008).
Although the September 14 press release mentioned only “a liquidity facility,” the support took two forms: (a) a loan agreement to provide funds secured by Northern Rock’s unsecuritized mortgage loans (Facility A in Figure 4) and (b) a repo facility to provide funds secured by securities, such as mortgage-backed securities issued through Northern Rock’s Granite program (see Key Design Decision No. 10, Balance Sheet Protection) (EC 2007). The parties later added Facility B, which the BoE described as a secured working capital line secured on all Northern Rock assets (BoE 2008a).
On October 9, 2007, the BoE expanded the liquidity facilities and received an indemnity from HM Treasury for additional lending. Northern Rock had requested the amended facilities to enable it to pursue a full range of options before deciding on resolution (BoE 2007d).
Sources: EC 2007; Northern Rock 2008a.
After October 9, Northern Rock could not borrow any more money from the September 14 liquidity facilities, Facility A (BoE 2007d; BoE 2008c). The liquidity facilities would be cancelled and all outstanding loans and other amounts accrued and outstanding would become immediately due and payable if Northern Rock underwent a change of control (Northern Rock 2008a). Reporting from media outlets and the NAO suggest that the pivot in facility usage appeared to be driven, at least in part, by the fact that Northern Rock was unable to furnish high-quality securities under the terms of Facility A and likely would have run out of suitable assets (Bowers and Elliott 2007; NAO 2009b).
As of December 31, 2007, Northern Rock reported approximately GBP 28.5 billion in outstanding borrowing under the facilities, including GBP 6.9 billion secured on residential mortgages under Facility A, GBP 16.4 billion secured by other assets under Facility B, a repo facility of GBP 3.6 billion secured on investment securities, and open market repo funding of GBP 1.5 billion (Northern Rock 2008a). The BoE reported outstanding borrowing to Northern Rock had declined to GBP 24.3 billion as of February 29, 2008: Facility A had declined to GBP 4 billion, Facility B had risen to GBP 18 billion, and the repo facility had declined to GBP 2.3 billion (BoE 2008a). The bank used the funds to cover retail outflows and to support operating cash flows and the repayment of nonretail liabilities as they matured. Northern Rock also depleted its existing liquidity to repay these liabilities, so the emergency facilities also helped the bank meet its liquidity requirements (Northern Rock 2008a). At the time, the UK had three liquidity regimes: the Sterling Stock regime, the Mismatch regime, and the Building Society regime (FSA 2007). Given that the Sterling Stock regime applied to the 17 largest firms, its liquidity requirements presumably applied to Northern Rock: banks had to hold BoE-eligible assets to cover their five-day wholesale net outflow and 5% of withdrawable retail deposits over five days (Acosta-Smith et al. 2019; Banerjee and Mio 2015; FSA 2007).
In the restructuring plan approved by HM Treasury, repaying the emergency liquidity facilities was one of four major priorities (see Key Design Decision No. 2, Part of a Package) (Northern Rock 2009).
On March 29, 2008, the BoE and HM Treasury said they intended to provide an additional committed secured revolving loan reserve facility (Northern Rock 2008a).
On August 5, 2008, HM Treasury committed to converting GBP 3 billion of the outstanding emergency liquidity assistance to equity (EC 2009b). However, in 2009, HM Treasury told the European Commission (EC) that it would not perform this conversion, but HM Treasury acknowledged that Northern Rock would need to be recapitalized to meet regulatory requirements. The projected recapitalization was redacted in the EC State Aid decision (EC 2009a).
According to UKAR’s annual reports for 2011 and 2013, HM Treasury committed to converting up to GBP 1.6 billion of its outstanding loan to capital so that NRAM could meet regulatory requirements, if necessary (UKAR 2012; UKAR 2014).
Other Options Considered
Before September 10, 2007, at least one potential buyer of Northern Rock asked UK authorities about what kind of support the troubled bank would receive. This potential buyer requested a support facility for Northern Rock, but Northern Rock and the tripartite authorities gave conflicting details to the House of Commons Treasury Select Committee (TSC) about the specifics of the bidder’s request (House of Commons 2008).
From September to November 2007, Northern Rock searched for a private sector takeover (House of Commons 2008). According to academics and the financial press, Lloyds TSBFNLloyds merged with TSB in 1995 (Lloyds Banking Group plc n.d.). In 2009, the EC ruled that Lloyds had to divest part of its business, so Lloyds and TSB split into two banks once more in 2013 (Lloyds Banking Group plc n.d.). expressed interest in buying Northern Rock, but a deal did not emerge because the tripartite authorities rejected the potential acquirer’s request for a BoE loan to finance the deal (Goldsmith-Pinkham and Yorulmazer 2009; Goodway 2012; Pfanner 2007).
On September 20, 2007, then–BoE Governor Mervyn King appeared before parliament and discussed the BoE’s decision to provide emergency liquidity versus capital injections or a government takeover of Northern Rock. On a capital injection, King said that the European Union’s (EU’s) Market Abuse Directive (MAD) would have prevented a government infusion into Northern Rock (see Key Design Decision No. 3, Legal Authority). On a government takeover, King said that regulations would have made a speedy transaction impossible (Dougherty 2007).
The NAO later said that Northern Rock would have needed GBP 4.5 billion–GBP 6 billion in capital injections if the government had not eventually taken over the bank in February 2008—though the bank did receive capital injections from the government after nationalization (see Key Design Decision No. 2, Part of a Package) (NAO 2012).
Part of a Package1
Broad-Based Deposit Insurance
Established in 2000 by the Financial Services and Markets Act, the Financial Services Compensation Scheme (FSCS) outlined depositor protection when a financial institution was unable, or likely to be unable, to meet its liabilities to depositors. Before October 2007, the FSCS guaranteed GBP 2,000 plus 90% of the deposits between GBP 2,000 and GBP 35,000 (HM Treasury, FSA, BoE 2007; Shin 2009). Thus, the maximum deposit insurance was GBP 31,700. On October 1, 2007, the FSA announced that maximum compensation under the FSCS was increased to 100% of the loss incurred on deposits up to GBP 35,000 (HM Treasury, FSA, BoE 2007). For more information, see Vergara (2022).
Northern Rock Guarantees
The September 14 announcement of the liquidity facilities led to a retail deposit run of at least GBP 4.6 billion on Northern Rock in the following days (BoE 2008c; Collinson 2007; House of Commons Public Accounts Committee 2009). The same day, shares fell in Alliance & Leicester, Bradford and Bingley, HBOS, and Barclays, amidst fear of contagion (Collinson 2007; Panja 2007).
On September 17, 2007, the chancellor announced that the government would fully guarantee Northern Rock’s existing deposits (BoE 2007d; HMT 2007). Days later, HM Treasury confirmed the guarantee to cover existing and renewed unsecured wholesale funding as well. On October 9, HM Treasury extended the guarantee to cover new retail deposits, those made after September 19, as well (BoE 2007d). On December 18, 2007, HM Treasury extended the guarantee again to include:
all unsecured retail products, all uncollateralized and unsubordinated wholesale deposits and wholesale borrowings, all payment obligations under any uncollateralized derivatize transactions, and all obligations of the Company to make payments on the repurchase of mortgages under the document for the Granite securitization program. (Northern Rock 2008a)
HM Treasury said the guarantee would last as long as the current period of financial instability persisted and would have three months’ notice before termination (HMT 2009). In exchange, Northern Rock paid a fee to HM Treasury (Northern Rock 2008a).
Northern Rock Restructuring, Capital Injection, and Resolution
HM Treasury nationalized Northern Rock on February 22, 2008, whereby the Treasury Solicitor took the bank into public ownership (BoE 2008b; BoE 2008d; House of Commons Public Accounts Committee 2009; Mor 2018). As of February 29, 2008, in addition to the liquidity facilities in Figure 4, Northern Rock also had GBP 1.2 billion of outstanding reverse repo agreements—GBP 0.1 billion of which were held with the BoE’s Banking Department and GBP 0.3 billion of which were held with the BoE’s Issue Department. On December 31, 2008, another GBP 0.1 billion were placed with the Banking Department (BoE 2008b). On March 31, 2008, HM Treasury approved a restructuring plan with four strategic priorities: (a) repay the emergency liquidity facilities, (b) align the bank’s organization and operations to reflect a new commercial strategy, (c) build a stand-alone funding and capital position, and (d) strengthen the risk and control environment (Northern Rock 2009).
Northern Rock continued to have higher-than-expected losses and was at risk of breaching its capital requirement. In July 2008, Northern Rock asked HM Treasury for GBP 3 billion in additional share capital, potentially GBP 4.5 billion to GBP 6 billion if losses increased. Northern Rock enjoyed regulatory relief on its capital position while the government considered options. HM Treasury decided against (a) staying the course with the original restructuring plan and (b) immediate closure of the bank, because both options were poor value for money. Thus, HM Treasury considered two more preferable options: (c) selling Northern Rock’s deposits to another bank and winding down the remaining mortgage assets in a separate, publicly owned company and (d) splitting Northern Rock into good and bad banks (NAO 2012). HM Treasury split Northern Rock into good and bad banks. The good bank took all preexisting customer savings accounts and some preexisting mortgage accounts. The bad bank became an asset management vehicle with GBP 75 billion in total assets, of which GBP 54 billion were mortgages and unsecured loans as of January 1, 2010. The asset management vehicle did not hold deposits or offer additional mortgage lending (Mor 2018). The government sought to sell assets to the private sector as quickly as possible because holding assets to maturity risked default on the part of borrowers (NAO 2016).
In January 2010, the government injected GBP 1.4 billion of equity to capitalize the new good bank after the split of Northern Rock. By late 2011, losses on the GBP 1.4 billion capital injection amounted to GBP 480 million (Mor 2018; NAO 2012).
For the funds recuperated from Northern Rock’s resolution via sale of the good and bad banks, see Key Design Decision No. 7, Source and Size of Funding.
Legal Authority1
UK Legal Authority
Although it did not have explicit statutory authority, the BoE enjoyed broad, discretionary powers for emergency liquidity assistance to banks. Tripartite memoranda of understanding since 1998 have been the guiding framework for emergency lending decisions (IMF 2011).
Under the Memorandum, the BoE is responsible for “undertaking, in exceptional circumstances, official financial operations . . . to limit the risk of problems in or affecting particular institutions spreading to other parts of the financial system” (BoE 2006).
Paragraph 13 of the Memorandum covers the process for assessing the seriousness of a crisis and considering appropriate measures. Paragraph 14 addresses the possibility of a need for operations beyond the BoE’s published framework. The memorandum says that the chancellor of the Exchequer has ultimate legal responsibility for authorizing support operations during exceptional circumstances (BoE 2006). The BoE’s press release announcing the facilities said the chancellor authorized the BoE to provide the facilities and refers to the Memorandum (BoE 2007c).
UK and European Union laws, including market abuse legislation, required the disclosure of emergency liquidity granted to Northern Rock (see Key Design Decision No. 6, Communication and Disclosure) (Reuters 2007a). At the time, UK authorities had to integrate (a) their own legislation, the Financial Services and Markets Act 2000, (b) the MAD framework passed by the European Parliament in 2003, and (c) the UK FSA rulebook for 2007. The GFC prompted UK authorities to rethink market abuse rules for the future (Edmonds 2016).
EC Decision-Making
As a then-member of the EU, the UK had to comply with the prohibition on monetary financing contained in Article 123(1) of the Treaty on the Functioning of the European Union (TFEU),FNThe TFEU, itself based on the Treaty of Maastricht of 1992, is one of the EU’s two foundational treaties (the other being the Treaty on European Union). It sets out in detail the principles and objectives of the EU and the scope and functional responsibilities of EU institutions (the Treaty on European Union in contrast defines the EU’s purpose and lays out its institutions and form). As a technicality, before the Lisbon Treaty came into effect in 2009, TFEU Article 123 was Article 101 of the Treaty Establishing the European Community, but the content was unchanged when the Lisbon Treaty relocated the article. which reads:
Overdraft facilities or any other type of credit facility with the European Central Bank or with the central banks of the Member States (hereinafter referred to as “national central banks”) in favour of Union institutions, bodies, offices or agencies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited, as shall the purchase directly from them by the European Central Bank or national central banks of debt instruments. (EU 2009, art. 123)
TFEU Article 123 prohibits the extension of liquidity to insolvent firms (at least without a state guarantee), as such is considered a public undertaking (in other words, one that should be supported with state resources). The monetary financing prohibition—including its application to emergency liquidity—is EU-level law, and thus applies even to those nations that are Member States of the EU but not members of the Eurosystem. For more on the application of the monetary financing prohibition to emergency liquidity assistance, see (V. Arnold 2025).
The European Commission reviewed the aid and determined that the September 14 facilities did not constitute State Aid under Article 87 (1) of the EC Treaty, because the September 14 facilities were initiated by the BoE before any of the other measures for Northern Rock. The October 9 amended facilities and the other government support did qualify as State Aid since the EC assessed that no market economy investor would have granted any of the measures. Yet, the Commission decided that the measures were compatible with the Common Market as rescue aid pursuant to Article 87 (3) (c) of the EC Treaty and raised no objections against them (EC 2007).
Administration1
Administration of Liquidity Facilities
The BoE granted emergency liquidity to Northern Rock on September 14, 2007. This took the form of a loan facility and a repurchase facility. In order to draw on the facilities, Northern Rock had to post collateral, and the BoE needed to be assured that the FSA viewed Northern Rock as complying with prudential requirements (EC 2007).
In exceptional circumstances, such as a time when the government is considering a support operation, a standing committee comprising the chancellor of the Exchequer (the head of HM Treasury and the government’s chief financial minister), the governor of the BoE, and the chairman of the FSA meets. The BoE and FSA each assess the crisis and its possible financial stability implications and provide separate assessments to the chancellor. In such an event, the primary goal of the authorities is to reduce the risk of wider financial or economic disruption while minimizing moral hazard and financial risk to taxpayers (BoE 2006).
Northern Rock again requested liquidity support from the BoE in October 2007, at which point the BoE amended the facilities and received an indemnity from HM Treasury (BoE 2008c).
The Court of Directors of the BoE (the Court) was responsible for managing BoE affairs excluding monetary policy. The Court did not have sole responsibility for decisions to grant emergency liquidity, but the BoE governor had to consult the Court on such matters. Specifically, the BoE had to consult with the Transactions Committee (TransCo), a three-member committee to be consulted on transactions outside the BoE’s normal operations (BoE 2009; Plenderleith 2012). After the initial emergency liquidity granted to Northern Rock, the BoE created a new structure for future emergency lending, inclusive of establishing TransCo to facilitate consultation with the Court and to help with the need to make decisions quickly (see Summary Evaluation) (Plenderleith 2012).
Created October 1, 2010, UK Asset Resolution Limited was a holding company under HM Treasury that brought together Bradford and Bingley plc and NRAM for resolution. UKFI managed HM Treasury’s shareholding in UKAR (UKAR 2017).
On August 28, 2008, HM Treasury took over administration of the liquidity facilities from the BoE (HMT 2009; UKAR 2021). To this end, HM Treasury refinanced the loan provided by the BoE to Northern Rock—the refinanced amount was GBP 518.5 million lower than the loan provided in the previous year. HM Treasury charged a floating rate to the company and a fixed rate secured against certain high-quality mortgage assets in addition to all land and buildings owned by Northern Rock. HM Treasury received interest on the loan from Northern Rock (HMT 2009).
Recuperating Amounts Drawn on the Liquidity Facilities
HM Treasury approved the sale of NRAM’s assets. UKFI supervised the sale, advised by investment bank Moelis. UKAR led the sale, advised by Credit Suisse in addition to law firm Slaughter and May (NAO 2016).
Governance1
Per Sections 6 and 9 of the National Audit Act of 1983, the National Audit Office (NAO) wrote multiple reports for the House of Commons on the nationalization of Northern Rock and included information about the liquidity facilities: March 2009, May 2012, and July 2016 (NAO 2009a; NAO 2012; NAO 2016). The EC wrote a State Aid report on the liquidity facilities and the broader intervention (EC 2007). The Treasury Committee of the House of Commons, a standing body, published a report on Northern Rock in January 2008 (House of Commons 2008; UK Parliament 2024).
The BoE Court of Governors also commissioned a report on the central bank’s emergency lending during the GFC. In October 2012, Ian Plenderleith published this report (the Plenderleith report), which contained a review of the emergency liquidity granted to Northern Rock (Plenderleith 2012).
Communication1
Characterizations and Run
At 8:30pm on September 13, 2008, the BBC reported that Northern Rock had requested and received emergency support from the BoE (BBC 2007; House of Commons 2008).
On September 14, 2007, the BoE issued a joint statement with HM Treasury and the FSA. The press release said the chancellor of the Exchequer authorized the BoE to provide liquidity support to Northern Rock “against appropriate collateral and at an interest rate premium” (BoE 2007c). The release also said the FSA judged that Northern Rock “is solvent, exceeds its regulatory capital requirement, and has a good quality loan book” (BoE 2007c). It described the decision to provide the emergency liquidity as reflecting the difficulties of Northern Rock in accessing longer-term funding and the mortgage securitization market, both markets on which the bank relied. The press release said the BoE, in its role as lender of last resort, was ready to make liquidity facilities available to other institutions facing short-term liquidity issues (BoE 2007c). While the press release did not specify a borrowing limit, Reuters contemporaneously reported that then–Chancellor Darling said that the peak lending amount would be limited by the amount of “good collateral” available in Northern Rock (Reuters 2007c).
On September 18, 2007, Northern Rock said that the “tide has turned” after the announcement of the government’s deposit guarantee (Reuters 2007b).
On September 20, 2007, then–BoE Governor King appeared before parliament and defended central bank actions since the onset of the GFC. Members of parliament probed the discrepancy between (a) King’s criticism of aid granted by the European Central Bank (ECB) and US Federal Reserve to cash–starved banks and (b) the BoE’s emergency lending to Northern Rock. King said, “We have balanced the concerns about moral hazard against the concerns that arose from the beginning of this week about the strains on the banking system more generally” (Dougherty 2007). Governor King also said that the UK’s insufficient deposit insurance system was also to blame for the run on Northern Rock. Considering that Northern Rock could not sell its mortgage-backed securities in tight credit conditions, King said that the BoE had to intervene (Dougherty 2007).
The three agencies issued another joint statement on October 9, 2007, in which HM Treasury made a statement about the guarantee arrangements and said they would be complemented by additional facilities from the BoE. The press release said the arrangements were put in place at the request of Northern Rock and would help the bank pursue a full range of options (BoE 2007a).
Then–BoE Governor King delivered a speech on October 9 in which he discussed Northern Rock and the broader financial system. King said the initial actions from authorities seemed to worsen the situation at Northern Rock rather than stabilize it (BoE 2007b). Similarly, the BoE’s 2007 Financial Stability Report said the announcement confirmed the extent of the difficulties and led to a run on retail deposits (BoE 2007d). King also said the issue at Northern Rock was not inadequate capital but rather its vulnerability to reduced liquidity in the markets for securitized mortgages (BoE 2007b).
Disclosure
King would have preferred to not disclose the emergency liquidity granted to Northern Rock on September 14, but UK and EU laws, including market abuse legislation, required disclosure of such aid (see Key Design Decision No. 3, Legal Authority) (Dougherty 2007; Reuters 2007a).
On October 11, 2007, then–Chancellor Alistair Darling told the House of Commons that the BoE’s facility to Northern Rock had been “replaced” on October 9 (Bowers and Elliott 2007). HM Treasury also made a stock market statement referring to the new arrangement: “In view of the scale and nature of the new facilities, the Treasury has agreed to indemnify the Bank of England should the Bank of England face a deficit having previously made all reasonable endeavors to recover its claims on the company” (Bowers and Elliott 2007).
The BoE did not disclose certain terms such as the end date or interest rate for the liquidity facilities, and the EC did not include the terms in its State Aid report (EC 2007, 3).
The BoE included details of the facilities in its annual report and provided some detail on amounts outstanding in its 2008 accounts (BoE 2008b; BoE 2008c).
The BoE did not specify amounts outstanding in its weekly balance sheet report. The lending to Northern Rock fell under the “Other assets” category without any more granularity. The chancellor said the BoE “does not provide details of any operations because it believes that doing so would undermine its ability to provide such support” (House of Commons 2008). HM Treasury is required to give details of contingent liabilities in its Estimates and Supplementary Estimates report but did not include information about the Northern Rock support in its winter 2007 report published on November 15. When the Treasury Select Committee asked HM Treasury why there was no reference to the contingent liability in the winter report, then–Permanent Secretary to the Treasury Nicholas Macpherson said they would “make a note of the contingent liability in the Spring Supplementary Estimates” (House of Commons 2008). Later in the Spring Supplementary Estimates published in February 2008, HM Treasury said that there was “no need to change the amounts of resources or cash sought” to reflect the impact of Northern Rock (HMT 2008).
Source and Size of Funding1
For the September 2007 liquidity facilities, then–Chancellor Darling said that the peak lending amount would be limited by the amount of “good collateral” available in Northern Rock (Reuters 2007c).
For the October 2007 liquidity facilities, the BoE did not set a borrowing limit, but the amended facilities were secured against all Northern Rock assets (BoE 2008c; House of Commons 2008). Borrowing would be less than the market value of the collateral due to the haircut policy (EC 2007; House of Commons 2008).
By late October 2007, Northern Rock had drawn about GBP 13 billion–GBP 14 billion from the September 14 facilities. After that point, the Treasury Select Committee said figures relating to the bank’s borrowing from the government appeared to include funds from the amended facilities (House of Commons 2008).
Although the October liquidity facilities were requested and indemnified by HM Treasury, the BoE administered the facilities (EC 2007).
Northern Rock’s annual reports revealed that the amount outstanding on the liquidity facilities reached GBP 28.5 billion as of December 31, 2007 (see Figure 5) (Northern Rock 2008a; 2009; Plenderleith 2012). In the course of the year, the government had recovered GBP 18 billion so that the amount outstanding was GBP 8.9 billion at the end of 2008 (Northern Rock 2009).
Figure 5: Northern Rock’s Outstanding Emergency Liquidity, GBP millions
Sources: Northern Rock 2008a; Northern Rock 2009; UKAR 2013; UKAR 2014; UKAR 2015; UKAR 2016; UKAR 2017; UKAR 2019.
On August 28, 2008, HM Treasury took over administration of the liquidity facilities from the BoE, at which point HM Treasury paid back the BoE (BoE 2009; HMT 2009; UKAR 2021).
Rates and Fees1
Public documents at the time did not disclose the interest rates for the emergency liquidity. Both of the September 14 facilities—the loan and repo facilities—used the same rate set at an unspecified fixed spread over the BoE’s official rate, then 5.75%, and above the BoE’s standing facility’s rate (EC 2007, 3). The September 14 press release said the lending would be at an interest rate premium (BoE 2007c).
The amended facilities beginning in October also charged a rate above the BoE’s official rate 0/0/00 0:00:00 AM. The interest premium under this amended arrangement would ultimately be paid to HM Treasury, as HM Treasury agreed to indemnify the BoE against losses. HM Treasury would cover any deficit existing once the BoE made all reasonable efforts to recover its claims. According to the payment-in-kind (PIK) interest agreement, the interest—on the other facilities and the PIK facility itself—was rolled up for five years and subordinated as Tier 2 debt, a lower status than the “senior secured creditor” status applied to the BoE’s broader support (EC 2007; House of Commons 2008).
According to later annual reports by UKAR, Northern Rock’s interest rate was the BoE base rate plus 25 basis points (bps). On May 4, 2012, the interest rate increased to the BoE base rate plus 100 bps (UKAR 2014; UKAR 2017).
Additionally, Northern Rock paid a fee for the extension of the liquidity facilities such that Northern Rock did not have a commercial advantage (BoE 2007a).
Loan Duration1
The emergency liquidity granted on September 14, 2007, had a predetermined but not disclosed repayment date. The facilities were also repayable on demand. The amended facilities also had an undisclosed final repayment date (EC 2007). In its March 2008 restructuring plan, Northern Rock said that it expected to repay 25% of its emergency liquidity by 2008, 75% of its emergency liquidity by 2009, and 100% of its emergency liquidity by 2010—excluding open market repo arrangements (Northern Rock 2008b). Meanwhile, in a 2012 report, the NAO said that authorities had expected the emergency liquidity to be repaid by the middle of 2010 and the guarantee to expire by the end of 2011 (NAO 2012).
In its 2007 annual report, Northern Rock listed its primary objectives as the repayment of the BoE debt, the release of the guarantee arrangements from HM Treasury, and a successful return to the private sector (Northern Rock 2008a).
In February 2008, HM Treasury nationalized Northern Rock and said it viewed that path as the best chance to protect the GBP 51 billion in public loans and guarantees (House of Commons Public Accounts Committee 2009). This action required the Banking (Special Provisions) Bill, as no existing legislation would allow the government to take over the bank (NAO 2009a; Northern Rock 2009).
Net of liquidity deposits held at the BoE,FNThe authors interpret this to mean Northern Rock’s reserves at the BoE resulting from the liquidity facility (Northern Rock 2009). Northern Rock repaid GBP 18 billion of the loan during 2008 leaving approximately GBP 8.9 billion outstanding at the end of the year. On a gross basis, GBP 15.6 billion was still outstanding. This was a faster pace of repayment than was planned (Northern Rock 2009).
After nationalizing the bank, the government split Northern Rock into good and bad banks, Northern Rock and NRAM, respectively. HM Treasury then sold Northern Rock back to the private sector while NRAM was responsible for the debt owed to the government (Plenderleith 2012). Over the subsequent years, HM Treasury sold off many of Northern Rock’s assets to recuperate the government-provided funding (M. Arnold 2017). On April 24, 2019, UKAR fully repaid the outstanding amount on the liquidity facilities (UKAR 2019).
Balance Sheet Protection1
Draws on the September 14 loan facility were collateralized by unsecuritized residential mortgage loans; the repo facility could use various securities. Northern Rock reported that it had funded GBP 4.6 billion in newly issued Granite mortgage-backed securities, and its outstanding repo loan was GBP 3.6 billion (EC 2007; Northern Rock 2008a). The BoE applied haircuts to the collateral in both facilities to protect itself against drops in market value (EC 2007; Northern Rock 2008a). The BoE valued the collateral daily and used the same methodology as in its normal monetary operations (EC 2007). The BoE governor described the collateral as “name-specific” (House of Commons 2008).
On October 9, 2007, HM Treasury requested that the BoE make additional facilities available to Northern Rock. HM Treasury indemnified the BoE against losses arising from the amended arrangement and covering losses only after October 9 (EC 2007). Then–BoE Governor Mervyn King described collateral for the updated facilities as all the assets of Northern Rock, “right down to the paper clips,” and noted that HM Treasury was the entity bearing the risk because of the indemnity (House of Commons 2008). The interest premium would go to HM Treasury and was rolled up for five years and subordinated as Tier 2 debt (EC 2007; House of Commons 2008). However, the chancellor of the Exchequer said the liability for the interest rate premium was “a small amount of money” (House of Commons 2008).
Discussing the security of the BoE’s lending, the chancellor said the BoE was Northern Rock’s senior secured creditor. The chancellor said the September 14 facilities were secured by assets including high-quality mortgages with significant haircuts and high-quality securities with the highest credit rating (House of Commons 2008).
Impact on Monetary Policy Transmission1
No information is available regarding monetary policy transmission connected to the liquidity facilities.
Other Conditions1
Northern Rock’s then–Senior Independent Director Ian Gibson asked each board member to agree to resign conditionally, and all agreed. However, the board members did not immediately resign because Northern Rock stakeholders wanted the current management to guide the bank during the immediate crisis (House of Commons 2008; Slater 2007). Northern Rock’s chairman announced his resignation on October 19, 2007. Four nonexecutive directors retired on November 16, and three other directors stepped down from the board but stayed at the company. On December 13, 2007, Northern Rock’s chief executive stepped down. The chairman of the Risk Committee departed as well (House of Commons 2008).
The UK Treasury Select Committee report said the directors of Northern Rock were the “principal authors” of the problems the bank faced since August 2007 and that it was right for them to be replaced (House of Commons 2008).
Under the terms of the loans from the BoE, Northern Rock had to conserve cash and reduce the number of mortgages it wrote. The bank needed to get BoE approval before entering into corporate restructuring, making substantial changes to its business, or paying dividends. The BoE monitored compliance with this stabilization plan and had increased access to information (NAO 2009a).
While not directly tied to the emergency liquidity, the EC decided that the guarantee arrangements from HM Treasury could remain in place for only six months unless HM Treasury submitted a restructuring or liquidation plan by March 2008 (NAO 2009a).
In testimony to the TSC, Northern Rock employees said that the government support did not come with any particular governance conditions but that the FSA and other tripartite authorities were closely overseeing the bank’s activities. In mid-September, the chairman of Northern Rock said the board had listened to the FSA and others and decided not to pay a shareholder dividend that had been announced in July (House of Commons 2008).
On April 30, 2008, the BoE amended the loan facilities again to incorporate a new liquidity management framework for managing funding and liquidity requirements (BoE 2008b; Northern Rock 2009). Per the framework, cash flows were used to pay wholesale funding maturities, maintain adequate liquidity to meet outflows, and repay the emergency facilities—in that order. Any permanent surplus liquidity had to go toward the repayment of the government-provided facilities. New lending to customers had to come from new retail or wholesale funding (Northern Rock 2009).
Key Program Documents
(BoE 2006) Bank of England (BoE). 2006. “Memorandum of Understanding between HM Treasury, the Bank of England and the Financial Services Authority.” 2006.
Memorandum of understanding establishing a co-operation framework among HM Treasury, the BoE, and the FSA for financial stability.
(EC 2009a) European Commission (EC). 2009a. “State Aid – United Kingdom State Aid C 14/08 (Ex NN 1/08) – Restructuring Aid to Northern Rock.” July 1, 2009.
EC State Aid report confirming that HM Treasury did not perform its planned conversion of debt to equity in Northern Rock.
(EU 2009) European Union (EU). 2009. Treaty on the Functioning of the European Union. 5/8/2008.
Treaty prohibiting monetary financing by Eurosystem national central banks.
Key Program Documents
(AFP 2007) Agence France Presse (AFP). 2007. “British Bank Rocked by Panic Withdrawals.” September 14, 2007.
News article on Northern Rock’s bank run in September 2007.
(M. Arnold 2017) Arnold, Martin. 2017. “Northern Rock Investors Accuse Treasury of Profiting from Bailout.” Financial Times, January 9, 2017.
News article on Northern Rock and objections from its former shareholders.
(BBC 2007) British Broadcasting Company (BBC). 2007. “Northern Rock Gets Bank Bail Out.” September 13, 2007.
News article reporting on the emergency support to Northern Rock.
(Bowers and Elliott 2007) Bowers, Simon, and Larry Elliott. 2007. “Treasury Underwrites Ailing Bank’s Bailout: Northern Rock Borrowing Spirals to Pounds 12.9bn Bank of England Restricted by Strict Lending Terms.” The Guardian, October 12, 2007.
News article containing public communications from the BoE and HM Treasury on the amended liquidity facilities to Northern Rock.
(Collinson 2007) Collinson, Patrick. 2007. “Government Guarantees Northern Rock Deposits.” The Guardian, September 17, 2007.
News article covering Northern Rock’s deposit guarantee during the GFC.
(Dougherty 2007) Dougherty, Carter. 2007. “Official Defends Bank of England’s Response to Crisis.” New York Times, September 21, 2007.
Article on BoE Governor King’s defence of central bank actions in response to the GFC.
(Ferreira-Marques 2007) Ferreira-Marques, Clara. 2007. “Barclays Again Taps Emergency Facility.” Reuters, August 31, 2007.
News article reporting Barclays’ use of the BoE’s standing facility.
(Goodway 2012) Goodway, Nick. 2012. “Bank Blocked Takeover of Northern Rock by Lloyds.” Evening Standard, June 13, 2012.
Article describing how the BoE did not support Lloyds with a loan that would allow the latter to acquire Northern Rock.
(Panja 2007) Panja, Tariq. 2007. “Bank of England Approves Emergency Funding for Northern Rock.” Associated Press, September 14, 2007.
News article on the announcement of liquidity support to Northern Rock.
(Patrick 2007) Patrick, Margot. 2007. “Northern Rock’s Granite Funding At Heart of Problems.” Dow Jones, September 14, 2007.
News article describing Northern Rock’s business model leading into the GFC.
(Pfanner 2007) Pfanner, Eric. 2007. “Future of British Mortgage Lender in Question after Run on Deposits.” New York Times, September 16, 2007.
News article on potential options discussed in the rescue of Northern Rock.
(Reuters 2007a) Reuters. 2007a. “Factbox–How Britain Regulates Banks.” October 1, 2007.
News article on the UK government’s disclosure of emergency liquidity to Northern Rock.
(Reuters 2007b) Reuters. 2007b. “Troubles at Northern Rock.” October 15, 2007.
News article covering events at Northern Rock during 2008.
(Reuters 2007c) Reuters. 2007c. “Northern Rock Issues Profit Warning.” September 14, 2007.
News article covering Northern Rock’s profit warning and share price losses in September 2007.
(Seager, Elliott, and Kollewe 2007) Seager, Ashley, Larry Elliott, and Julia Kollewe. 2007. “Barclays Admits Borrowing Hundreds of Millions at Bank’s Emergency Rate.” The Guardian, August 30, 2007.
News article reporting Barclay’s use of the BoE’s standing facility.
(Slater 2007) Slater, Steve. 2007. “Northern Rock Bosses Say Crisis Could Not Be Predicted.” Reuters, October 16, 2007.
News article on criticisms that Northern Rock’s management faced during autumn 2007.
Key Program Documents
(BoE 2007a) Bank of England (BoE). 2007a. “Northern Rock Plc Deposits.” Press release, September 10, 2007.
Press release announcing changes to the deposit guarantees and liquidity facilities for Northern Rock.
(BoE 2007b) Bank of England (BoE). 2007b. “Speech given by Mervyn King, Governor of the Bank of England at the Northern Ireland Chamber of Commerce and Industry, Belfast.” September 10, 2007.
Transcript of a speech by then–Governor of the BoE King, including some commentary on Northern Rock.
(BoE 2007c) Bank of England (BoE). 2007c. “Liquidity Support Facility for Northern Rock Plc.” Press release, September 14, 2007.
Press release announcing the liquidity support for Northern Rock.
(HM Treasury 2011) HM Treasury. 2011. “Chancellor Announces Sale of Northern Rock Plc.” November 17, 2011.
Press release by HM Treasury announcing the sale of Northern Rock to Virgin Money.
(Moody’s 2007) Moody’s Investors Service (Moody’s). 2007. “Moody’s Affirms Northern Rock’s Prime-1 Short Term Rating; Places Aa3 Bond Rating on Review Direction Uncertain.” September 17, 2007.
Press release by Moody’s on ratings action after the announcement of emergency liquidity support to Roskilde.
(UK Parliament 2024) UK Parliament. 2024. “Treasury Committee.” February 1, 2024.
Web page containing information on the standing Treasury Committee in the UK parliament.
Key Program Documents
(BoE 2007d) Bank of England (BoE). 2007d. Financial Stability Report 2007.
2007 BoE report on financial stability.
(BoE 2008a) Bank of England (BoE). 2008a. Annual Report and Accounts 2008.
Annual report by the BoE for the period between March 1, 2007, to February 29, 2008.
(BoE 2008b) Bank of England (BoE). 2008b. Bank of England Accounts 2008.
Financial accounts for the BoE for 2007-8.
(BoE 2008c) Bank of England (BoE). 2008c. Bank of England Annual Report 2008.
BoE annual report covering 2007-8.
(BoE 2008d) Bank of England (BoE). 2008d. Financial Stability Report October 2008.
The BoE’s report on financial stability for 2008.
(BoE 2009) Bank of England (BoE). 2009. Annual Report 2009. Bank of England.
Bank of England’s annual report for 2008-2009.
(EC 2007) European Commission (EC). 2007. “State Aid NN 70/2007 (Ex CP 269/07) – United Kingdom Rescue Aid to Northern Rock.” May 12, 2007.
EC State Aid report covering the aid to Northern Rock.
(EC 2009b) European Commission (EC). 2009b. “Commission Decision of 28.10.2009 on the State Aid N° C 14/2008 (Ex NN 1/2008) Implemented by the United Kingdom for Northern Rock.” October 28, 2009.
EC decision on the restructuring aid to Northern Rock.
(Edmonds 2016) Edmonds, Timothy. 2016. “Market Abuse Directive/Regulation.” House of Commons Briefing Paper No. SN03271, January 4, 2016.
House of Commons report on market abuse rules in effect at the time when emergency liquidity was granted to Northern Rock in autumn 2007.
(Edmonds 2017) Edmonds, Timothy. 2017. “Purchase of Distressed Assets by Cerberus.” UK Hose of Commons, February 2017.
House of Commons report on the sale of assets from Northern Rock to Cerberus.
(FSA 2007) Financial Services Authority (FSA). 2007. “Review of the Liquidity Requirements for Banks and Building Societies.” December 2007.
FSA report on the shortcomings of existing liquidity requirements in the UK.
(HM Treasury, FSA, BoE 2007) HM Treasury, Financial Services Authority, and Bank of England (HM Treasury, FSA, BoE). 2007. “Banking Reform – Protecting Depositors: A Discussion Paper.” October 2007.
Joint report by HM Treasury, FSA, and BoE on protecting deposits in the UK during autumn 2007.
(HMT 2007) HM Treasury (HMT). 2007. “Statement by the Chancellor of the Exchequer on Financial Markets.” September 17, 2007.
Statement by the head of the UK Treasury covering the deposit guarantee for Northern Rock.
(HMT 2008) HM Treasury (HMT). 2008. Central Government Supply Estimates 2007-08: Revised Spring Supplementary Estimates.
Revised statements from HM Treasury to the parliament for spring 2008.
(HMT 2009) HM Treasury (HMT). 2009. Annual Reports and Accounts 2008-09. HM Treasury.
Annual report by HM Treasury for 2008—2009.
(House of Commons 2008) House of Commons Treasury Committee (House of Commons). 2008. “The Run on the Rock.” UK Parliament, January 24, 2008.
Document discussing the run at Northern Rock in the UK's Parliament
(House of Commons 2012) House of Commons. 2012. “The Creation and Sale of Northern Rock Plc.” November 5, 2012.
Committee of Public Accounts report on the resolution of Northern Rock.
(House of Commons Public Accounts Committee 2009) House of Commons Public Accounts Committee. 2009. “The Nationalisation of Northern Rock.” January 6, 2009.
House of Commons report on Northern Rock’s failure and nationalization.
(IMF 2011) International Monetary Fund (IMF). 2011. “United Kingdom: Crisis Management and Bank Resolution Technical Note.” IMF Country Report No. 11/228, July 2011.
Report by the IMF on the UK financial system following the GFC.
(Mor 2018) Mor, Federico. 2018. “Bank Rescues of 2007-09: Outcomes and Cost.” Briefing Paper No. 5748, October 8, 2018.
Retrospective evaluation by the House of Commons Library staff on UK bank rescues during the GFC.
(NAO 2009a) National Audit Office (NAO). 2009a. “Summary: The Nationalisation of Northern Rock.” March 18, 2009.
Report on the aid to and ultimate nationalization of Northern Rock.
(NAO 2009b) National Audit Office (NAO). 2009b. “The Nationalisation of Northern Rock.” March 20, 2009.
NAO report on the takeover of Northern Rock.
(NAO 2012) National Audit Office (NAO). 2012. “The Creation and Sale of Northern Rock Plc.” May 18, 2012.
Report by the Comptroller and Auditor General on the sale of Northern Rock.
(NAO 2016) National Audit Office (NAO). 2016. “The £13 Billion Sale of Former Northern Rock Assets.” July 19, 2016.
Full report by the Comptroller and Auditor General on the sale of Northern Rock’s assets.
(Northern Rock 2008a) Northern Rock. 2008a. Northern Rock Plc Annual Report and Accounts 2007.
Annual report covering 2007.
(Northern Rock 2008b) Northern Rock. 2008b. “Provisional Northern Rock Restructuring Plan: Executive Summary.” March 31, 2008.
Summary of Northern Rock’s proposed restructuring plan.
(Northern Rock 2009) Northern Rock. 2009. Northern Rock Plc Annual Report and Accounts 2008.
Annual report covering 2008.
(Plenderleith 2012) Plenderleith, Ian. 2012. “Review of the Bank of England’s Provision of Emergency Liquidity Assistance in 2008-09.” Bank of England, October 2012.
Bank of England report covering the central bank’s interventions during the Global Financial Crisis.
(UKAR 2012) UK Asset Resolution (UKAR). 2012. Annual Reports and Accounts 2011. UK Asset Resolution.
Annual report by UKAR for 2011.
(UKAR 2013) UK Asset Resolution (UKAR). 2013. Annual Reports and Accounts 2012. UK Asset Resolution.
Annual report by UKAR for 2012.
(UKAR 2014) UK Asset Resolution (UKAR). 2014. Annual Report and Accounts 2014. UK Asset Resolution.
Annual report by UKAR for 2014.
(UKAR 2015) UK Asset Resolution (UKAR). 2015. Annual Reports and Accounts 2015.
Annual report by UKAR for 2015.
(UKAR 2016) UK Asset Resolution (UKAR). 2016. Annual Report and Accounts 2015 to 2016. UK Asset Resolution.
Annual report by UKAR for 2016.
(UKAR 2017) UK Asset Resolution (UKAR). 2017. Annual Report & Accounts for the 12 Months to 31 March 2017. UK Asset Resolution.
Annual report for UKAR for 2017.
(UKAR 2019) UK Asset Resolution (UKAR). 2019. Annual Report & Accounts for the 12 Months to 31 March 2019. UK Asset Resolution.
Annual report for UKAR for 2019.
(UKAR 2021) UK Asset Resolution (UKAR). 2021. Annual Report & Accounts for the 12 Months to 31 March 2021. UK Asset Resolution.
Annual report for UKAR for 2021.
(UKFI 2009) UK Financial Investments Ltd (UKFI). 2009. “UKFI Strategy: Market Investments and Annual Report and Accounts 2008/09,” 2009.
Annual report for UKFI for 2008-2009.
Key Program Documents
(Acosta-Smith et al. 2019) Acosta-Smith, Jonathan, Guillaume Arnold, Kristoffer Milonas, and Quynh-Anh Vo. 2019. “Capital and Liquidity Interaction in Banking.” Staff Working Paper No. 840, September 2019.
BoE working paper on the interaction between bank capital and liquidity transformation.
(V. Arnold 2025) Arnold, Vincient. 2025. “Emergency Liquidity Assistance and Monetary Financing in the European Union: A Case Study in Fiscal Cooperation?” Yale Program on Financial Stability, January 30, 2025.
Policy note discussing the application of monetary financing regulations on emergency liquidity assistance in Europe.
(Banerjee and Mio 2015) Banerjee, Ryan N., and Hitoshi Mio. 2015. “The Impact of Liquidity Regulation on Banks.” Bank for International Settlements, January 8, 2015.
Study on the impact of liquidity regulation on banks with attention to UK requirements before the run on Northern Rock.
(Goldsmith-Pinkham and Yorulmazer 2009) Goldsmith-Pinkham, Paul, and Tanju Yorulmazer. 2009. “Liquidity, Bank Runs, and Bailouts: Spillover Effects During the Northern Rock Episode.” Journal of Financial Services Research 37, December 15, 2009.
Article on the spillover effects of Northern Rock’s bank run and bail out announcement.
(Kelly et al., forthcoming) Kelly, Steven, Vincient Arnold, Greg Feldberg, and Andrew Metrick. Forthcoming. “Survey of Ad Hoc Emergency Liquidity Programs.” Journal of Financial Crises.
Survey of YPFS case studies examining the provision of ad hoc emergency liquidity.
(Shin 2009) Shin, Hyun Song. 2009. “Reflections on Northern Rock: The Bank Run That Heralded the Global Financial Crisis.” Journal of Economic Perspectives 23, no. 1, Winter 2009.
Academic paper on Northern Rock’s impact on the GFC.
(Vergara 2022) Vergara, Ezekiel. 2022. “United Kingdom: Financial Services Compensation Scheme.” Journal of Financial Crises 4, no. 2, July 15, 2022.
YPFS case study on account guarantees in the UK during the GFC.
(Wiggins et al. 2022) Wiggins, Rosalind Z., Sean Fulmer, Greg Feldberg, and Andrew Metrick. 2022. “Broad-Based Emergency Liquidity Programs.” Journal of Financial Crises 4, no. 2.
Survey of YPFS case studies examining broad-based emergency liquidity programs.
Key Program Documents
(Lloyds Banking Group plc n.d.) Lloyds Banking Group plc. n.d. “The History of Lloyds Bank.”
Webpage containing the history of Lloyds Banking Group as a potential acquirer of Northern Rock.
Taxonomy
Intervention Categories:
- Ad-Hoc Emergency Liquidity
Countries and Regions:
- United Kingdom
Crises:
- Global Financial Crisis