The Fed injected liquidity into the market to ease market tensions, and reached an agreement with a Middle Eastern consortium to sell a portion of its subordinated bond portfolio to replenish sufficient cash flow, and Stanley's executives concluded that the subprime mortgage crisis had attracted a lot of attention, but they had weathered it safely.

While the top executives of Stanley were still complacent about the agreement and the stock price rising, on the other side of the Atlantic, in the United States, a large commercial bank was in an unprecedented panic.

Founded in 1965, the British North Rock Bank (Northon Rock Bank) was originally known as the North Rock Housing Mutual Aid Association, and later gradually developed into a commercial bank, and was listed on the London Stock Exchange in 97 and became a listed commercial bank.

By '07, Northern Rock had managed to become one of the largest commercial banks in the UK, with around 1.5 million depositors at present. In terms of bank mortgage business, Northern Rock Bank is at the forefront of the entire British banking industry, it was originally the fifth largest mortgage institution in the United Kingdom, and the amount of new mortgage loans in the first half of 07 was the first in the British banking industry, issuing loans to about 800,000 home buyers, both in terms of scale and total amount, there is a trend of becoming the first in the British banking industry.

As an enterprising commercial bank, the management of Northern Rock Bank has always maintained an aggressive style, which can be seen from their public financial statements, and their cash flow has been negative from 02 to 06. In other words, the lending business is growing too fast. More cash was handed out. However, because the operating income also grew at about the same rate, the two offsets, and the liquidity problem of Northern Rock Bank did not become prominent.

However, in the public statement in September 07, the cash flow growth of Northern Rock Bank was still -43%, while the operating income growth fell from the previous 20% to -11.11%, which immediately attracted the attention of all parties in the market. Because Northern Rock is growing so fast in terms of mortgage loans, and the corresponding savings income is not growing in tandem, it may have problems in terms of liquidity.

There are three aspects that need to be taken into account in the operation of a bank, profitability, risk and liquidity, and these three can never be both. Because these characteristics are inherently contradictory. As for which aspect to focus on. It depends on what kind of strategy the management of the commercial bank prefers.

It is clear that the management of Northern Rock Bank intends to sacrifice liquidity for profitability, and as for liquidity, they can obtain it through the interbank overnight lending market. Although these funds are short-term. As long as it can meet the reserve ratio and core capital ratio. They don't care if the funds are short-term.

In addition to over-lending. The banking layer of Northern Rock is a group of risk-appetite people, who strive to learn from their American counterparts and use securities instruments to overexploit the market. in the mortgage market. They have designed a variety of mortgage models, including portfolio mortgages, fixed-rate mortgages, variable rate mortgages, lifetime mortgages, rental mortgages, etc., and have greatly expanded their market share. And these bonds, they also packaged and sold them to investment banks in a similar way, and securitized to get rid of risks.

But the subprime mortgage crisis across the Atlantic soon spread to the British Isles, and Northern Rock Bank, which was the home mortgage of the time, was the first to be affected. The first is the downgrade of Northern Rock's credit rating, which has been downgraded by a number of rating agencies, including Moody's, and Fitch has kicked Northern Rock from A- to BBB+, almost becoming a subordinated rating.

Secondly, due to cash flow troubles, analysts in the market have also begun to be unoptimistic about the shares of Northern Rock Bank, most of the financial industry analysts do not increase their holdings of Northern Rock Bank's shares, and even one-third of analysts recommend "selling". Although Northern Rock is still a company with strong growth and stable profitability in terms of price-to-earnings and price-to-book ratios, the wind in the market has quietly shifted.

The Fed's injection of money into the market completely shocked the market, although everyone had heard of the subprime mortgage crisis in the financial market in the United States, but no one would have imagined that things would be so strict that it would even require the Fed to intervene in person. Soon the focus of the UK market was on the financial giants in the mortgage market, with Northern Rock Bank being the most eye-catching.

At 11 p.m. on September 13, in the headquarters of Northern Rock Bank in the Thames Financial City, as usual, there were at most sporadic lights on the other floors, except for the global trading department. But today the situation is different, the top floor of the 38th floor is brightly lit, and the figures are constantly walking back and forth, and it is clear that something unusual is happening here.

"I have just received news that tomorrow morning the Financial Supervisory Authority, the Bank of Scotland and the Treasury will jointly issue a letter with the general content of this letter to continue to maintain the stability of the banking sector."

It wasn't until half past eleven that all the bank executives in the UK were called back, and before they could come to their senses, the chairman and CEO of Northern Rock Bank, Matt Brown. Ridri said with a solemn expression.

Matt. Dry, who is in his fifties, and like many Britons, began to lose his hair in middle age, and now has a hairline at the top of his head, and his oily bald head is his trademark. Wearing rimless glasses, his face was already full of wrinkles, but it was this slightly old face that led Northern Rock Bank to flourish in recent years, quickly becoming one of the largest conglomerates in the UK.

"So what?" General Manager Byrne, who specializes in credit business. Sander spread his hands in confusion, his face full of doubt. In recent years, the credit business has become one of the most profitable businesses of Northern Rock Bank. Sander is a popular candidate to take over as CEO, so he always tries to express himself in such high-level meetings.

Byrne. Sander was in his forties, and he was in the prime of life. In the four years since he joined the bank, the bank's credit growth has exceeded anyone's imagination, especially in the first half of this year, when the growth of mortgage loans has become the first in the UK, which has made him even more beautiful.

The dozen or so people sitting in the conference room didn't speak, but seeing their twinkling eyes, Matt knew that what they imagined in their hearts was similar to Byrne's, and he didn't understand the purpose of today's emergency meeting at all.

After a sigh. Matt. Ridri had to dwell on the current predicament facing Northern Rock. "Friends, maybe you don't know it, but there is a problem with the liquidity of our bank. Because of the subprime mortgage crisis in the United States, the international financial market. In particular, the lending market has stagnated. So the way we used to rely on to borrow cash to supplement liquidity no longer works. In desperation. I had to turn to England for help, and they had promised us a money injection tomorrow. Ease our tight liquidity. ”

"What?"

"How is this possible?"

"We've got a liquidity problem, oh my god, this news can't leak!"

……

As soon as the words came out, the audience was shocked.

Since commercial banks are divided into several independent departments, if they do not sit in the position of CEO or CFO, they basically do not know much about the situation of other departments. In this case, the trading department is solely responsible for borrowing funds, and if there is a problem, the person in charge of the transaction department reports it to the board of directors or the CEO himself. So after hearing the news suddenly, all the other people who didn't know the inside story were shocked, and only a few people who knew the inside story were "not surprised", but they all looked blank, and it was obvious that their hearts were also extremely bitter.

It took a full five minutes for the discussion to fade down. After initially accepting this opinion, Byrne. Sander frowned and said, "Since the Bank of England has decided to inject capital, it is a good thing for us. At least let the market see the central bank's determination to maintain market stability. ”

Having said that, Byrne's brow was already raised, he wouldn't be naïve enough to think that things would be this simple, otherwise he wouldn't need Matt. Ridri summoned the top brass for an emergency meeting in the middle of the night.

"Yes, although there is support from the Bank of England, the problem is that the Bank of England will not be able to inform the public about this, so they will jointly issue an open letter tomorrow with the Supervisory Authority and the Treasury to inject money into us as support on the premise of maintaining the stability of the financial system."

Matt. Ridri shook his head slightly as he explained, he couldn't stop what these three institutions were doing, and he couldn't stop it, this was the established procedure, "So the problem now is that if the market simply interprets this letter as a payment crisis, and all the savings in our bank may suffer, then there will be a run, and then we will most likely face a serious crisis, an existential crisis!" ”

Finally, we get to the most critical issue.

The biggest fear of any commercial bank in the world is not a loss, but a run. This is because the capital of commercial banks comes from the savings of ordinary depositors, and then distributes them to the industries that need funds through its channels. In this process, businesses rely on the difference between the two to make a profit.

This cooperation is based on credit and legal protection, which of course cannot be fully protected by law. And once the credit collapses, depositors will prefer to withdraw the principal without interest, and at this time, the bank has already released these funds, and the funds have become assets, which are basically unlikely to be realized in the short term. And if depositors can't get the cash they need in the short term, the credit crisis will continue to widen and even spread to all sides, with the worst possible outcome being a complete collapse.

This is the crisis brought about by liquidity.

At the moment, everyone is the elite of the industry, and naturally understands the danger, and a few people immediately turned pale with fright, and some people began to fidget. Although the British banking system has a good reputation and has not experienced a run for 100 years, if a similar situation does occur this time, no one can say what will become of Northern Rock Bank.

"The purpose of this meeting is to ......"

After looking around again, Matt. Ridri took in the reactions of the crowd, and at this point he had to stand up and say, "Mobilize all the resources you have at hand, whether it is England, Scotland, or Wales, or even the United States, the Far East." As long as you have the channels, you can apply for a mortgage of some of our assets and obtain liquidity as much as possible, and we must survive this difficult time this time. ”

"Isn't the Bank of England pumping enough money to deal with this crisis?" While everyone was silent, Byrne. Sander spoke again. Among these people, he is the one who does not take this matter very seriously, because since the Bank of England has already intervened, I believe they should not give up halfway.

"If there is a run, the duration of the run, the amount of funds withdrawn, and the trust that the outside world has placed in us are no longer under our control. Now we have nothing to do but try to raise money, and all that's left is to hide the news as much as possible. As for the rest, leave it to God! ”

Matt. Ridri gave Byrne a deep look, and said meaningfully, then he silently drew a cross on his chest, and then said solemnly: "Start now, fellows! (To be continued......)

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