Impact of the Financial Crisis (2007-2009) on Financial Markets and Institutions

Seminar paper from the year 2010 in the subject Economics - Economic Cycle and Growth, University of Westminster, language: English, abstract: It is widely acknowledged that the 2007 - 2009 financial crises have been one of the most ferocious of our history. The financial crisis began on August - September 2007 and the Lehman Brothers' bankruptcy just confirmed that the fantastic cycle of economic growth had finished. Moreover, since September 15, 2008 the domino effect due Lehman Brothers' collapse spread the fear among the financial markets and investors. In the UK, the Northern Rock crisis has been one of the most dramatic and clearest consequences of the recent financial collapse. As a result of that, the Bank of England had to act as a lender-of-last-resort and the British Government offered guarantee for deposits of a bank for the first time in the history. Northern Rock was previously a mutual building society converted to bank in 1997, however it remained focused on the mortgage market and became the eighth largest bank and the fifth largest mortgage lender in the UK. Since its demutualization, Northern Rock had grown through heavy reliance on borrowing with about 50% of its funding coming from securitization. In order to explain the Northern Rock crisis, it is necessary to analyze several circumstances as a whole, since it was the result of a multi- dimensional problem. This paper seeks out to do so by taking a closer look at the business model, the financial turmoil, and the attitude of regulators.