How has the financial landscape changed since 2007?

13th September 2012

The former Chancellor of the Exchequer said: "The problem was that people assumed that if you were making money then everything must be OK………..Perhaps companies should ask themselves, if you are making an awful lot of money, why are you making all of this money? Is it well founded or is it being built on a completely false basis?"

He continued: "If you look at the position that Northern Rock was in, it went from being a pretty small provincial building society, largely based in the North East, to one of the major mortgage providers for the whole country and they did it very, very quickly."

"They just carried on as if nothing was going to go wrong."

Yet, while the takeover of Northern Rock managed to prevent a total banking collapse, five years removed from the bailout, The Northern Echo maintains that the banking crisis shows little sign of coming to an end.

"During the past five years, UK banks have gone from one crisis to another……At times, this has caused the share prices of UK focused banks to fall faster than Paralympian Oscar Pistorius could run on extralong blades."

"This includes high street names – Barclays, Lloyds and RBS, the latter of which has seen its share price fall by nearly 95 per cent. While the UK-listed international banks – HSBC and Standard Chartered – have fared far better, they have also experienced some problems."

Winners and losers

Meanwhile, Moneysupermarket.com, the British price comparison website, examined how the financial landscape has changed since 2007. Kevin Mountford, head of banking at Moneysupermarket said the most significant change that occurred during the period has been the fall in the Bank of England Base Rate which has fallen to a record low of 0.5 per cent, impacting both savers and borrowers.

"Millions of borrowers have benefited from a low Base Rate environment taking full advantage of the fall in mortgage payments….. However, the danger is, when rates rise, many people will find they don't have the spare cash to fund the increases in their monthly payments."

"Savers may consider themselves the biggest 'losers' since the credit crunch as they have struggled from the significant fall in Bank of England Base Rate as well as the effects of inflation on their savings pots."

So could a run on a British bank happen again?

"The short answer is maybe," writes Brooke Masters, the chief regulation correspondent of the Financial Times, "but global and UK officials have responded with regulatory fixes, including some that could have made a difference."

Masters says tough new liquidity standards aimed at forcing banks to hold more easy to sell assets might have helped Northern Rock survive a short-term freeze on wholesale lending but the rules will not take effect globally until 2015. Moreover, regulators have yet to finish drafting a "net stable funding ratio" aimed at the mismatch between long-term lending and short-term funding.

 "It would have made a difference but let's not kid ourselves that it is all in place," says Jon Pain, a former FSA managing director now with KPMG, the accountants. "We've got the illusion of saying we have done all these things but a number of them are years off."

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The Financialist

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