The Role of Law and the Failure of Northern Rock
Edited by Joanna Gray and Orkun Akseli
Chapter 3: Northern Rock, the Financial Crisis and the Special Resolution Regime
Andrew Campbell INTRODUCTION This chapter considers the unexpected effect that the demise of Northern Rock has had on bank insolvency law in the United Kingdom.1 It considers the background to the new framework for dealing with insolvent banks, which was introduced by the Banking Act 2009, and it then goes on to examine certain aspects of the Special Resolution Regime (SRR) which the legislation introduced.2 THE RUN ON NORTHERN ROCK3 The UK had not experienced a significant banking crisis since the collapse of Barings Bank in 1995 and the possibility of a significant British bank being in financial difficulties was something that was not within the contemplation of most bank customers. However, in the late British summer of 2007 this situation was to radically and quickly change. During July and August of 2007 liquidity had started to dry up on the international money markets and this had a direct effect on the financial position of Northern Rock, which had become so dependent on getting its funds from these markets. By the middle of August it had become obvious to the senior management of Northern Rock that it was having serious difficulties in trying to refinance some extremely large commitments that had become due. By early September it was in a very precarious position. It had tried to access lender of last resort assistance from the Bank of England but that had been refused.4 39 GRAY PRINT.indd 39 22/06/2011 11:49 40 Financial regulation in crisis? The run on the branches...
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