U.K. Government Absorbs Lender Troubled by Global Credit Crisis
- Feb 18, 2008
London–The U.K. government announced Sunday that it would nationalize Northern Rock bank, the country’s fifth largest lender, the Financial Times reported Monday.After five months of trying to secure a private buyer, the decision to nationalize stemmed from the mortgage lender’s commitment to protecting taxpayers’ money, chancellor Alistair Darling said. After running into problems with its funding structure, which involved relying heavily on short-term money markets instead of deposits, Northern Rock collapsed last year during the global credit crisis.Taxpayers, who are now subsidizing the bank in loans and guarantees to other lenders, stand to lose about £100 billion–7 percent of national income if all the bank’s mortgages went into default and the subsequent foreclosures involved properties with no value. Although that situation is unlikely, taxpayers could lose less if the housing market continues to decline in the U.K., according to the Financial Times.The Bank of England bailed troubled Northern Rock out last year.