2 April 2007 New Century Financial, one of the largest sub-prime lenders in the US, filed for Chapter 11 bankruptcy protection. New Century sought protection from creditors after it was forced by its backers to repurchase billions of dollars worth of bad loans.
17 May 2007 Federal Reserve Chairman Ben Bernanke said in a speech on the sub-prime mortgage market: ‘We believe the effect of the troubles in the sub-prime sector on the broader housing market will likely be limited, and we do not expect significant spillover from the sub-prime market to the rest of the economy or to the financial system.’
10 July 2007 The Financial Times reported that the chief executive of Citigroup, Chuck Prince, had ‘dismissed fears that the music was about to stop for the cheap credit-fuelled buy-out boom, declaring that Citigroup was “still dancing”’, adding he said that ‘the party would end at some point but there was so much liquidity at the moment it would not be disrupted by the turmoil in the US sub-prime mortgage market’. Prince said: ‘When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.’
17 July 2007 Wall Street investment house, Bear Stearns, said that its two troubled hedge funds were virtually worthless following the bursting of the real estate bubble.
19 July 2007 Ben Bernanke warned that the crisis in the US sub-prime lending market could cost up to $100bn. Giving evidence to the Senate, Bernanke said that credit losses associated with sub-prime mortgage failures were ‘fairly significant’.
9 August 2007 As the financial markets fell back, international investors feared that the credit problems that began with the US sub-prime mortgage market were accelerating. French investment bank BNP Paribas froze three funds because of the knock-on effects of the sub-prime troubles. Germany’s IKB said that it was affected and there were also rumours of serious problems at WestLB, another German bank.
In response to the turmoil, the European Central Bank (ECB) pumped €95 billion into the credit markets to improve liquidity.
The US Federal Reserve said it was also injecting $12 billion of temporary reserves into the US banking system.
14 August 2007 It subsequently emerges that on this date, the Financial Services Authority (FSA) disclosed concerns about Northern Rock to the Treasury and Bank of England.
17 August 2007 The US Federal Reserve cut its primary discount rate (the rate at which it lends money to banks) from 6.25 per cent to 5.75 per cent.
26 August 2007 In Germany, Sachsen, a Saxony-based bank with assets of €68 billion (€46 billion) owned partly by the regional government, announced that it was being taken over by Landesbank Baden-Württemberg (LBBW) after a previously attempted €17.3 billion bailout failed.
3 September 2007 The German lender IKB Industriebank, already bailed out by other German banks, said it expected to lose around €473 million as a result of its exposure to sub-prime mortgages in the US.
4 September 2007 The London Interbank Offered Rate (LIBOR) reached 6.7975 per cent for a loan over a three-month period, suggesting that banks were reluctant to lend money to each other. It also meant LIBOR was above the Bank of England’s emergency lending rate to banks, which is 6.75 per cent.
13 September 2007 The BBC revealed that Northern Rock had asked for, and had been granted, emergency financial support from the Bank of England (in its role as lender of last resort).
14 September 2007 Northern Rock issued a statement on market conditions and trading update. Depositors queued to withdraw their savings from branches around the country.
17 September 2007 The Chancellor, Alistair Darling, made a statement on the situation in the financial markets and announced that the government would guarantee all the existing deposits in Northern Rock.
18 September 2007 The Federal Reserve cut interest rates to 4.75 per cent from 5.25 per cent.
19 September 2007 The Bank of England announced an injection of £10 billion into the money markets in an attempt to bring three-month inter-bank interest rates down.
20 September 2007 The Treasury announced extended protections for Northern Rock customers.
23 September 2007 The press reported that Northern Rock had borrowed ‘about £3 billion’ from the Bank of England facility.
25 September 2007 Northern Rock announced that they would not be paying the interim dividend due the following month – this retained £59 million within the bank.
1 October 2007 Swiss bank UBS announced losses of $3.4 billion from sub-prime related investments. Citigroup later announced a sub-prime related loss of $3.1 billion.
The FSA increased the limit of Financial Service Compensation Scheme (FSCS) cover for deposits to 100 per cent of the first £35,000 of each depositor’s claim. The previous compensation limit was a maximum of £31,700 (100 per cent of the first £2,000 and 90 per cent of the next £33,000 of depositors’ eligible claims).
9 October 2007 The Treasury confirmed that the guarantee arrangements previously announced to protect existing depositors of Northern Rock would be extended to all new retail deposits made after 19 September.
11 October 2007 The Chancellor announced that the FSA would be setting out proposals for a review of the UK liquidity regime.
19 October 2007 Northern Rock Chairman, Dr Matt Ridley, resigned from the bank’s board and was replaced by Brian Sanderson.
30 October 2007 Merrill Lynch’s chief executive, Stanley O’Neal, resigned after the bank unveiled a $7.9 billion exposure to bad debt.
31 October 2007 US Federal Reserve lowers key Fed Funds interest rate to 4.5 per cent from 4.75 per cent.
4 November 2007 Chuck Prince resigned as chief executive of Citigroup, as the bank revealed it was facing an additional $8 billion to $11 billion of losses on mortgage related securities.
16 November 2007 Adam Applegarth, CEO of Northern Rock, resigned.
The deadline for offers to acquire Northern Rock expired.
19 November 2007 The Chancellor made a statement on the future of Northern Rock following the bids received for the company.
29 November 2007 The Bank of England revealed that the number of mortgage approvals had fallen to its lowest level for nearly three years.
30 November 2007 The Council of Mortgage Lenders warned that without more funding available on financial markets mortgage lenders would not be able to offer as many mortgages.
6 December 2007 President Bush outlined plans to freeze rates on sub-prime mortgages for five years to help people hit by the US housing market crisis.
The Bank of England cut interest rates by a quarter of a percentage point to 5.5 per cent.
11 December 2007 Federal Reserve lowered the Fed Funds rate to 4.25 per cent from 4.5 per cent.
12 December 2007 The US Federal Reserve announces two policy measures: (1) Term Auction Facility (TAF), ‘allowing the Federal Reserve to inject term funds through a broader range of counterparties and against a broader range of collateral than open market operations’; and (2) the establishment of foreign exchange swap lines with the European Central Bank (ECB) and the Swiss National Bank (SNB), providing dollars in amounts of up to $20 billion with the ECB and $4 billion with the SNB.
A Liberal Democrat-sponsored debate in the House of Commons called for nationalisation of Northern Rock.
13 December 2007 The Federal Reserve, European Central Bank and central banks from the UK, Canada and Switzerland announced that they would provide billions in loans to banks in order to lower interest rates and ease the availability of credit. The move was co-ordinated by the US Federal Reserve.
14 December 2007 Northern Rock CEO Adam Applegarth replaced by Andy Kuipers.
19 December 2007 The FSA published the consultation document ‘Review of the liquidity requirements for banks and building societies’.
Ratings agency Standard & Poor’s (S&P) downgraded its investment rating of a number of ‘monoline’ insurers (which specialise in insuring bonds, guaranteeing to repay the loans if the issuer goes bust). There was concern that insurers would not be able to pay out, forcing banks to announce another big round of losses.
18 January 2008 A rush to withdraw money from its commercial property funds forced Scottish Equitable to introduce withdrawal delays of up to 12 months for its customers. It affected investors in the Scottish Equitable Property fund, Select Reserve fund and Select Distribution fund.
21 January 2008 Global stock indexes, including the UK FTSE 100, had their most precipitous fall since the terrorist attacks of 11 September 2001. The FTSE 100 index tumbled 5.5 per cent to 5,578.2 per cent, wiping £77 billion ($149 billion) off the value of its listed shares. Indexes in Paris and Frankfurt slumped by about 7 per cent, while markets in Asia, India and South America also dropped. The Chancellor made a statement outlining how the private sector rescue of Northern Rock would proceed and how the competing bids would be assessed.
22 January 2008 The US Federal Reserve slashed interest rates to 3.5 per cent from 4.25 per cent, its biggest cut in 25 years, and noted that ‘appreciable downside risks to growth remain’.
26 January 2008 The Treasury Select Committee published its report on Northern Rock, ‘The Run on the Rock’.
29 January 2008 The government published its regulatory reform proposals, ‘Financial stability and depositor protection: strengthening the framework’.
31 January 2008 Major monoline bond insurer, MBIA, posted its biggest ever loss for a three-month period, hit by its exposure to the US. sub-prime mortgage crisis. MBIA made a net loss of $2.3 billion (£1.15 billion) in the quarter ending 31 December.
7 February 2008 Ben Bernanke expressed his concern about monoline insurers, saying he was closely monitoring developments ‘given the adverse effects that problems of financial guarantors can have on financial markets and the economy’.
The Bank of England cut interest rates to 5.25 per cent from 5.5 per cent.
8 February 2008 Figures from the Council of Mortgage Lenders revealed that the number of homes repossessed in the UK in 2007 was 27,100, its highest level since 1999.
17 February 2008 The Chancellor announced that Northern Rock would be taken into a period of temporary public ownership. In so doing, the government rejected the two private sector offers that had been put forward. The draft Banking (Special Provisions) Bill was published.
18 February 2008 Northern Rock shares were suspended. The Banking (Special Provisions) Bill had its first reading in the Commons and, in a statement to the House, the Chancellor stated that ‘the government have no intention at present to use the Bill to bring any institution other than Northern Rock into temporary public ownership’.
19 February 2008 The Banking (Special Provisions) Bill had its second reading in the Commons.
21 February 2008 The Banking (Special Provisions) Bill received Royal Assent. The Act defined the circumstances in which the Treasury can take a financial institution into public ownership. This can only occur if either of the following two conditions is met: (1) maintaining the stability of the UK financial system in circumstances where the Treasury consider that there would be a serious threat to its stability if the order were not made; (2) protecting the public interest in circumstances where financial assistance has been provided by the Treasury to the deposit-taker for the purpose of maintaining the stability of the UK financial system.
22 February 2008 Northern Rock moved into a period of ‘temporary public ownership’.
7 March 2008 The US Federal Reserve made $200 billion (£99 billion) available to major banks, saying it had taken action ‘to address heightened liquidity pressures’ in funding markets.
11 March 2008 The Federal Reserve announces Term Securities Lending Facility (TSLF) to lend up to $200 billion of Treasury securities to primary dealers secured for a term of 28 days against a range of collateral. Swap lines with the ECB and SNB (previously announced on 12 December 2007) increased by $10 billion and $2 billion respectively.
12 March In the UK, the Northern Rock plc Compensation Order 2008 was debated in the Third Delegated Legislation Committee. The order determined the framework for compensation levels for existing shareholders.
14 March 2008 Bear Sterns investment bank receives emergency lending from the Federal Reserve (via JP Morgan).
17 March 2008 Wall Street’s fifth-largest bank, Bear Stearns, was acquired by larger rival JP Morgan Chase for $240 million (or $2 per share) in a deal backed by $30 billion of central bank loans (the offer was subsequently increased to $10 per share a week later).
18 March 2008 Federal Reserve lowers Fed Funds rate to 2.25 per cent from 3 per cent.
26 March 2008 The FSA published the summary of a review conducted by their internal audit division into the supervision of Northern Rock.
28 March 2008 The Nationwide Building Society predicted that UK house prices would fall by the end of the year.
2 April 2008 Moneyfacts reported that 20 per cent of mortgage products had been withdrawn from the UK market in the previous seven days.
7 April 2008 The Abbey bank announced it was withdrawing the last 100 per cent mortgage deals available to UK borrowers. The offers ended on Wednesday 9 April.
8 April 2008 The International Monetary Fund warned that potential losses from the credit crunch could reach at least $1 trillion and said that the effects were spreading from sub-prime mortgage assets to other sectors, such as commercial property, consumer credit and company debt.
10 April 2008 The Bank of England cut interest rates by a quarter of 1 per cent to 5 per cent.
11 April 2008 The Council of Mortgage Lenders warned that mortgage funding could be cut by half in 2008.
15 April 2008 The Royal Institution of Chartered Surveyors (RICS) said that 78.5 per cent more surveyors reported a fall rather than rise in house prices in March. This was the gloomiest reading since the RICS survey began in 1978. The government’s house price figures confirmed a fall in prices in February by 1.6 per cent.
21 April 2008 The Bank of England launched the Special Liquidity Scheme (SLS) allowing banks to temporarily swap their high-quality mortgage-backed and other securities for UK Treasury Bills. Under the scheme, banks could swap illiquid assets for Treasury Bills. However, responsibility for losses on their loans would remain with the banks.
22 April 2008 The Royal Bank of Scotland announced a plan to raise money from its shareholders with a £12 billion rights issue – the biggest in UK corporate history.
25 April 2008 Persimmon became the first UK house builder to announce major cutbacks, citing the lack of affordable mortgages and a fall in consumer confidence.
29 April 2008 Figures from the Bank of England showed that new mortgages approved for house purchases in March slumped to 64,000, down from 72,000 the previous month. This was the lowest level since current records began in April 1993, and was down 44 per cent on the figure for the same month in 2007.
30 April 2008 The first annual fall in house prices for 12 years was recorded by Nationwide. Prices were 1 per cent lower in April compared to a year earlier.
The Federal Reserve lowered the Fed Funds rate to 2 per cent from 2.25 per cent.
2 May 2008 Insolvency Service figures revealed an increase in UK company insolvencies.
The Federal Reserve’s Term Auction Facility (TAF) increased to $75 billion from $50 billion; increases its swap lines with the ECB and SNB by $20 billion and $6 billion respectively and broadens the range of collateral that can be used in the Term Securities Lending Facility (TSLF).
22 May 2008 Swiss bank UBS, one of the worst affected by the credit crunch, launched a $16 billion rights issue to cover some of the $37 billion it lost on assets linked to US mortgage debt.
5 June 2008 Moodys and S&P rating agencies downgrade the two largest monoline insurers from AAA to AA, although market reaction was observed as ‘calm’.
19 June 2008 The FBI arrested 406 people, including brokers and housing developers, as part of a crackdown on alleged mortgage frauds worth $1 billion.
Separately, two former Bear Stearns employees faced criminal charges related to the collapse of two hedge funds linked to sub-prime mortgages. It is alleged they knew of the funds’ problems but did not disclose them to investors. They were later acquitted of the charges.
25 June 2008 Barclays said it was planning to raise £4.5 billion ($8.8 billion) in a share issue to bolster its balance sheet: shares would be sold to new investors, such as the Qatar Investment Authority, and existing shareholders including China Development Bank.
8 July 2008 The British Chambers of Commerce’s quarterly report found the credit crunch and rising costs had dented the most important sectors of the economy and that there were serious risks of recession in the UK.
The FTSE 100 stock index briefly dipped into a ‘bear market’, in which the market suffers a 20 per cent fall from its recent highs.
13 July 2008 US mortgage lender IndyMac collapsed.
14 July 2008 The US government announced measures to shore up the nation’s two largest mortgage finance companies, Freddie Mac (Federal Home Loan Mortgage Corporation) and Fannie Mae (Federal National Mortgage Association). The plan called on Congress to expand the companies’ access to credit and allow the Treasury to buy shares in the companies if needed. The two firms own or guarantee almost half of all US home loans – more than $5 trillion (£2.5 trillion) of debt.
21 July 2008 Just 8 per cent of HBOS investors agreed to take up the new shares offered in its £4 billion rights issue, because they are priced higher than existing shares are trading on the stock market.
31 July 2008 UK house prices showed their biggest annual fall since the Nationwide began its housing survey in 1991, a decline of 8.1 per cent.
HBOS revealed that profits for the first half of the year sank 72 per cent to £848 million, while bad debts rose 36 per cent to £1.31billion as customers failed to repay loans.
4 August 2008 HSBC warned that conditions in financial markets were at their toughest ‘for several decades’ after suffering a 28 per cent fall in half-year profits.
22 August 2008 Revised figures from the ONS revealed that the UK economy was at a standstill in the second quarter of the year.
28 August 2008 Nationwide revealed that UK house prices had fallen by 10.5 per cent in a year.
29 August 2008 One day later Bradford & Bingley posted losses of £26.7 million for the first half of 2008, blaming surging mortgage arrears for a rise in impairment. It warned that it expected arrears to remain at high levels for the rest of the year.
Alistair Darling warned that the economy was facing its worst crisis for 60 years in an interview with The Guardian newspaper, saying that the downturn would be more ‘profound and long-lasting’ than most had feared.
1 September 2008 Official figures from the Bank of England showed a slump in approved mortgages for July.
The pound fell to record lows of 81.21 pence against the Euro and two-year lows of $1.80.
2 September 2008 In an effort to kick-start the UK housing market, the Treasury announced a one year rise in stamp duty exemption, from £125,000 to £175,000.
The OECD, the international forecasting group, forecast that the UK would be in recession by the end of the next two quarters. A day later the ECB cut the Eurozone growth forecast 2009 to 1.2 per cent from 1.5 per cent.
4 September 2008 The Bank of England left rates on hold at 5 per cent while figures from the Halifax showed that house prices in England and Wales were continuing to fall.
5 September 2008 A raft of negative news from around the world saw the FTSE notch up its steepest weekly decline since July 2002.
US labour market figures showed the unemployment rate rising to 6.1 per cent.
6 September 2008 The Halifax warned that the impact of the credit crunch would be felt well into 2010. Chief executive Andy Hornby explained that British banks would continue to suffer major problems in offering loans until they could raise significant sums on wholesale markets, something that would not be possible until US house prices recovered.
7 September 2008 Mortgage lenders Fannie Mae and Freddie Mac were rescued by the US government in one of the largest bailouts in US history. Treasury Secretary Henry (Hank) Paulson said the two firms’ debt levels posed a ‘systemic risk’ to financial stability and that, without action, the situation would get worse.
In the UK, the Nationwide announced that it would merge with two smaller rivals, the Derbyshire and Cheshire Building Societies.
9 September 2008 The Office for National Statistics (ONS) revealed UK manufacturing output fell by 0.2 per cent between June and July, raising a real fear of recession.
The British Retail Consortium reported that retail sales values fell by 1 per cent on a like-for- like basis from August 2007.
The Royal Institute of Chartered Surveyors published figures showing house sales were at their lowest level for 30 years while the CML reported that the number of first-time buyers had hit its lowest level since its survey began in January 2002.
10 September 2008 Wall Street bank, Lehman Brothers, posted a loss of $3.9 billion (£2.2 billion) for the three months to August. The announcement came against a background of further dire economic warnings from the European Commission, which warned that the UK, Germany and Spain would go into recession by the end of the year.
15 September 2008 Lehman Brothers filed for Chapter 11 bankruptcy protection, becoming the first major bank to collapse since the start of the credit crisis.
Former Federal Reserve chief Alan Greenspan dubbed the failure as ‘probably a once-in-a-century type of event‘ and warned that other major firms will also go bust.
US bank Merrill Lynch agreed to be taken over by Bank of America (BoA) for $50 billion.
Eleven of the world’s biggest banks have agreed to pool $70 billion in a liquidity fund to help counter disruption in short-term funding markets. The Financial Times said the fund was ‘intended to act as a kind of self-insurance scheme’.
16 September 2008 The Federal Reserve leaves Fed Funds rate unchanged at 2 per cent.
17 September 2008 The Bank of England announced the extension of the final date of the drawdown period for its Special Liquidity Scheme from 21 October 2008 to 30 January 2009.
Lloyds TSB bank agrees to buy HBOS.
American International Group (AIG), one of the world’s biggest insurers, was saved from the brink of collapse after the US Federal Reserve, agreed an $85 billion (£47 billion) bailout of the company. The deal gave the US government a 79.9 per cent stake in the insurer.
18 September 2008 Rumours circulated of a Federal Reserve plan to buy out banks’ toxic assets.
The Federal Reserve doubles the size of its swap line to ECB, increasing it to $110 billion, and raising the swap line with the SNB to $27 billion from $15 billion. In addition, new swap lines are created with the Bank of Japan ($60 billion), the Bank of England ($40 billion) and the Bank of Canada ($10 billion).
The FSA announced a ban on short selling of financial stocks and an obligation to disclose significant ‘short’ positions, a move also adopted by the Irish Central Bank, the financial regulator.
19 September 2008 US Treasury Department announced the establishment of a temporary guaranty programme for the US money market mutual fund industry. The programme will mean that the US Treasury will insure the holdings of any publicly offered eligible money market mutual fund – both retail and institutional – that pays a fee to participate in the program.
The FTSE 100 recorded its largest ever one-day rise after US government plans for a banking sector bailout and new restrictions on short-selling sparked a rally that pushed the benchmark index up by 9 per cent.
Financial regulators in the US, France and Canada ban short selling of financial stocks. In the US, the Securities and Exchange Commission (SEC) said that its action was in concert with the FSA’s.
24 September 2008 Warren Buffett’s investment company, Berkshire Hathaway, reported taking a $5 billion stake in Goldman Sachs through a private placement in preferred stock.
26 September 2008 JP Morgan bought American mortgage lending institution Washington Mutual.
29 September 2008 US Congress rejected a plan involving $700 billion of government purchases of ‘toxic debt’. The US stock market registered its steepest ever fall.
The Federal Reserve adds a further $330 billion to its swap lines with overseas central banks, bringing the total to $620 billion.
Citigroup bought parts of Wachovia, the Federal Deposit Insurance Corporation, and agreed to take responsibility for losses over a set level.
In the UK, Bradford & Bingley was broken up. Its retail side was taken over by Santander and the mortgage and loan books were nationalised.
In Iceland, the government took a 75 per cent share in Glitnir Bank.
The Fortis Group was nationalised by a coalition of the Belgian, Luxembourg and Dutch governments.
30 September 2008 The Irish government guaranteed all deposits (as well as certain bonds and debts) in six Irish banks for two years.
Belgian bank Dexia was rescued by Belgian, French and Luxembourg government money.
1 October 2008 The Bank of England began providing covert liquidity to Halifax/Bank of Scotland; this support peaked at £25.4 billion on 13 November. Information about this covert help was disclosed to the House by the Chancellor over a year later (25 November 2009).
Italy bans short selling of financial stocks.
3 October 2008 The Bush administration’s $700 billion emergency bailout for the US banking industry became law. The House of Representatives backed the rescue plan by a margin of 263 to 171, overturning the vote of 29 September when it was opposed by 228 to 205.
The bill, which allowed the US treasury to clean up banks’ balance sheets by purchasing distressed mortgage-backed securities, was signed by President Bush within hours of congressional approval.
Wells Fargo announced plans to merge with Wachovia. Citigroup later withdrew its Wachovia bid.
In the UK, the FSA increased the compensation limit for bank deposits from £35,000 up to a total of £50,000 for each customer’s claim.
5 October 2008 In Germany, a €50 billion (£39 billion) package to rescue Germany’s second-biggest property lender, Hypo Real Estate (HRE) was agreed. In addition, the German government guarantees all private bank accounts.
In Belgium, an agreement was reached to secure the future of Fortis, the country’s second-biggest bank, by selling 75 per cent of its Belgian operations to BNP Paribas. France’s biggest bank would also take over two-thirds of Fortis’s Luxembourg business.
In Iceland, the government continued talks with Nordic central bankers on a €10 billion capital injection into the island’s commercial banks, including its leading player, Kaupthing.
In Italy Unicredit, the country’s second-biggest bank, negotiated a fresh capital injection of up to a reported €6 billion.
6 October 2008 The Chancellor made a statement to the Commons on developments in the financial markets.
The Federal Reserve increases the size of the Term Auction Facility (liquidity support for banks) programme to $600 billion.
Sweden increases its deposit guarantee to SEK 500,000 from SEK 250,000.
7 October 2008 The Bank of England began providing covert liquidity to Royal Bank of Scotland; this support peaked at £36.6 billion on 17 October. Information about this concealed help was disclosed to the House by the Chancellor only over a year later (25 November 2009).
The Icelandic government took control of Landsbanki, the second-largest bank in the country, and sought to secure a €4 billion loan from Russia as it worked to avert a financial meltdown.
8 October 2008 The Treasury announced a number of measures including the Credit Guarantee Scheme and Bank Recapitalisation Fund that were intended to: (1) provide sufficient liquidity in the short term; (2) make available new capital to UK banks and building societies to strengthen their resources permitting them to restructure their finances, while maintaining their support for the real economy; and (3) ensure that the banking system had the funds necessary to maintain lending in the medium term.
HM Treasury also reported that eight major banks and building societies had committed to the government that they would increase their capital by £25 billion.
The Bank of England reduced interest rates by half a percentage point to 4.5 per cent, as part of a co-ordinated move with the Bank of Canada, ECB, Federal Reserve, Swedish Riksbank and the Swiss National Bank.
The Federal Reserve cut its Fed Funds rate to 1.5 per cent from 2 per cent .
The Treasury issued press releases on Landsbanki, Icesave and Heritable and on Kaupthing.
9 October 2008 Italian government pledged to provide funds to any of the country’s banks if needed.
11 October 2008 The G7 presented a five-point ‘Plan of Action’ to deal with increasing financial turmoil. This included a promise to: ‘ensure that our banks . . . can raise capital from public and well as private sources, in sufficient amounts to re-establish confidence and permit them to continue lending to households and businesses.’
13 October 2008 The Chancellor made a statement to the Commons on the recapitalisation of HBOS, Lloyds TSB and RBS, with the government taking significant shareholdings in the three banks and its capital investment totalling £37 billion. The Chancellor also issued a written statement on the Contingencies Fund and the action taken on the Icelandic banks, Kaupthing and Landsbanki.
France announces a €320 billion fund to provide loan guarantees to banks and other financial institutions, plus €40 billion to buy stakes in French banks in need of capital.
The German government pledged €400 billion in loan guarantees and €80 billion to recapitalise banks in distress.
The Federal Reserve removes limits on the size of its swap lines with the ECB, SNB announcing and Bank of England, ‘Counterparties in these operations will be able to borrow any amount they wish against the appropriate collateral in each jurisdiction’.
The Bank of Japan introduced a similar measure the following day.
14 October 2008 The US government unveiled a $250 billion plan to take stakes in nine leading banks. Of the $250 billion (which came from the $700 billion bailout approved by Congress), half was to be injected into nine big banks, including Citigroup, Bank of America, Wells Fargo, Goldman Sachs and JP Morgan Chase, officials told the New York Times. The other half would go to smaller banks and thrifts.
The UK Treasury issued a written statement on the Debt Management Office’s 2008–09 financing remit to raise £37 billion to facilitate bank recapitalisation.
15 October 2008 The Dow Jones fell 733 points, or 7.9 per cent, to 8,578, and the wider S&P500 fell 9 per cent. Both performances were the worst since the 1987 stock market crash.
16 October 2008 Swiss government invests CHF6 billion into UBS, and relieves UBS of problematic assets of up to US$60 billion which are sold to the Swiss National Bank (central bank of Switzerland).
17 October 2008 The Bank of England’s covert liquidity support to Halifax/Bank of Scotland and Royal Bank of Scotland peaked at £61.6 billion jointly, at which point the two banks were providing collateral in excess of £100 billion.
French savings bank Caisse d’Epargne announced a loss of €600 million in a ‘trading incident’.
19 October 2008 South Korea announced a $130 billion financial rescue package to stabilise its markets by offering a state guarantee on banks’ foreign debts and promising to inject capital into struggling financial firms if necessary.
The Dutch savings bank ING received a €10 billion capital injection from the Dutch government.
20 October 2008 The Swedish government pledged more than SEK 1.5 trillion (£117 billion) to support its financial firms.
The French government announced it would invest €10.5 billion in the country’s six biggest banks by year-end, on the condition that they increase lending to companies and households.
The Reserve Bank of India reduced its overnight lending rate from 9 per cent to 8 per cent with immediate effect.
21 October 2008 In the UK, the Department for Business, Innovation and Skills issued details of further measures to help small and medium sized businesses. These focused on cash flow, access to finance and training for staff.
22 October 2008 The UK government announced new rules to help protect homeowners facing the threat of repossession. New court protocols would help to make repossessions a last resort, and the government proposed that companies engaged in sale and rent back schemes should be brought under FSA regulation.
The Economic Secretary to the Treasury made a statement to the Commons on the latest government measures to help small businesses.
23 October 2008 The Canadian government announced the creation of the ‘Canadian Lenders Assurance Facility’ to provide insurance on the wholesale term borrowing of federally regulated deposit-taking institutions. It explained that it would ‘help to secure access to longer-term funds so that Canadian financial institutions can continue lending to consumers, homebuyers and businesses in Canada’.
24 October 2008 UK gross domestic product in the third quarter of 2008 fell by 0.5 per cent, the first contraction since the second quarter of 1992 when the British economy was at the end of its last recession, and the biggest drop since the fourth quarter of 1990.
27 October 2008 Japanese FSA bans naked short selling until 31 March 2009.
29 October 2008 The Federal Reserve cuts the Fed Funds rate to 1 per cent from 1.5 per cent and new swap lines are established with Brazil, Mexico, Singapore and Korea, each of $30 billion.
30 October 2008 The US economy shrank at an annual rate of 0.3 per cent in the three months to September.
31 October 2008 The UK Secretary of State for Business, Peter Mandelson, gives Lloyds TSB plc’s acquisition of HBOS plc regulatory clearance, saying that ‘on balance’, ensuring the stability of the UK financial system justified the anti-competitive outcome that the Office of Fair Trading identified and that ‘the public interest is best served by clearing the merger’.
6 November 2008 The Bank of England reduced interest rates by 1.5 percentage points to 3 per cent.
The ECB cut interest rates from 3.7 per cent to 3.25 per cent
9 November 2008 China announced a £373 billion economic stimulus package to boost its economy.
11 November 2008 Peter Mandelson announced the creation of a new panel to monitor how banks were lending to small businesses.
12 November 2008 The US Treasury abandoned its plan to spend billions of dollars buying up illiquid mortgage assets, and instead concentrated on improving the flow of credit for the US consumer. The plan to help US banks by taking toxic mortgage assets off their hands had been a cornerstone of the $700 billion troubled assets relief programme.
14 November 2008 Gross domestic product in the Eurozone fell by 0.2 per cent for a second consecutive quarter in the third quarter, satisfying the technical definition for a recession.
19 November 2008 The International Monetary Fund approved a $2.1 billion loan for Iceland. The British, Dutch and German governments later confirmed that they would give Iceland a combined $6.3 billion in loans to cover the cost of compensating Icesave account holders.
24 November 2008 In his pre-Budget report, the Chancellor announced a £20 billion fiscal stimulus, including a reduction of VAT from 17.5 per cent to 15 per cent and the bringing forward of £3 billion of capital spending to support the economy, increasing capital budgets for 2008–09 and 2009–10.
The US government announced a rescue plan for Citigroup.
25 November 2008 The International Monetary Fund approved a $7.6 billion standby loan for Pakistan to help the country avoid defaulting on its debt. The US government injected a further $800 billion (£528 billion) into the financial system in another attempt to kick-start the mortgage and consumer lending markets.
26 November 2008 The European Commission announced plans for a £160 billion economic recovery package.
1 December 2008 The US recession was officially confirmed by the National Bureau of Economic Research.
3 December 2008 The UK government announced details of a new Homeowner Mortgage Support Scheme.
4 December 2008 The Bank of England reduced interest rates by one percentage point to 2 per cent.
The ECB reduced interest rates to 2.5 per cent from 3.25 per cent.
The French government announced a €26 billion plan to help the national economy, including a €1 billion loan for carmakers and €5 billion of new public sector investments.
10 December 2008 The UK Treasury announced further details of the Homeowner Mortgage Support Scheme.
11 December 2008 The Bank of America announced that it was cutting up to 35,000 jobs following its merger with Merrill Lynch.
14 December 2008 The Irish government announced a recapitalisation programme for its national credit institutions of up to €10 billion.
15 December 2008 HM Treasury extended Credit Guarantee Scheme (first announced on 8 October 2008) from three years to five years.
16 December 2008 The US Federal Reserve cut interest rates to a range of zero to 0.25 per cent from 1 per cent.
19 December 2008 Japan cut it main discount rate to 0.1 per cent. President Bush announced $17.4 billion (£11.6 billion) in short-term loans to General Motors and Chrysler, with the money coming from the Troubled Asset Relief Programme.
21 December 2008 The Irish government announced €2 billion recapitalisation investment each in Allied Irish Bank and Bank of Ireland and €1.5 billion in Anglo Irish Bank.
31 December 2008 The FTSE closed down 31.3 per cent since the beginning of the year, the biggest annual fall since the index began.
8 January 2009 The Bank of England reduced interest rates by half a percentage point to 1.5 per cent.
12 January 2009 The UK government announced extra help for people unemployed for over six months. This included: employers’ golden hellos; new training places; work-focused volunteering options; and help to set up a business.
14 January 2009 Peter Mandelson announced new measures designed to address the cash flow, credit and investment needs of small and medium businesses.
15 January 2009 The European Central Bank cut interest rates to 2 per cent from 2.5 per cent, bringing Eurozone borrowing costs to a three-year low after four cuts in a row totalling 225 basis points (2.25 percentage points).
The Irish government nationalised Anglo Irish Bank, stating that ‘the funding position of the bank has weakened and unacceptable practices that took place within it have caused serious reputational damage to the bank’.
16 January 2009 Bank of America was given a new injection of $20 billion (£13.5 billion) by the US government and a guarantee of $118 billion on potential losses on toxic assets. The move came as Merrill Lynch, which had been taken over by BoA, reported a $15.3 billion loss for the fourth quarter. BoA lost $1.79 billion in the quarter. Citigroup posted a loss of $8.29 billion and said it would split in two.
The UK ban on short selling expires but the disclosure requirements regarding short positions continues till 30 June 2009.
19 January 2009 The UK government announced new measures ‘to reinforce the stability of the financial system, to increase confidence and capacity to lend, and in turn to support the recovery of the economy’. These included: (1) extending the drawdown window for new debt under the government’s Credit Guarantee Scheme (CGS) which was designed to reduce the risks on lending between banks; (2) establishing a new facility for asset backed securities; (3) extending the maturity date for the Bank of England’s Discount Window Facility which provided liquidity to the banking sector by allowing them to swap less liquid assets; (3) establishing a new Bank of England facility for purchasing high-quality assets; (4) offering capital and an Asset Protection Scheme for banks, with proposals for this to be co-ordinated internationally; and (5) clarifying the regulatory approach to capital requirements, through an announcement by the Financial Services Authority.
The Treasury issued a statement on the Asset Protection Scheme as well as on the government’s decision to convert the Treasury’s preference share investment in RBS Group plc to ordinary shares in order to: (1) make available additional core capital to the bank to strengthen its resources, enable it to absorb expected losses and permit it to restructure its finances; and (2) give the bank the opportunity to build its capital further so that it is able to maintain and increase its support for the real economy by facilitating £6 billion more lending to industry and homeowners, over and above existing commitments.
The FSA made a statement on the development of the bank capital regulatory framework.
21 January 2009 The French government announced further €10.5 billion to recapitalise French banks.
28 January 2009 The Federal Reserve kept its target range for the Fed Funds rate at 0 per cent to 0.25 per cent, but added that it was ‘prepared to purchase longer-term Treasury securities if evolving circumstances indicate that such transactions would be particularly effective in improving conditions in private credit markets’.
3 February 2009 The Swedish government announced recapitalisation scheme of up to SEK50 billion for solvent banks and certain other credit institutions incorporated in Sweden.
The Federal Reserve extended the expiry of existing liquidity programmes from 30 April to 30 October 2009.
5 February 2009 The Bank of England reduced the Bank rate from 1.5 per cent to 1.0 per cent.
9 February 2009 Barclays Bank reported profits before tax of £6.1 billion for the full year of 2008, down 14 per cent on its profits taken in 2007.
11 February 2009 The Irish government agreed to invest €3.5 billion each in Allied Irish Bank and Bank of Ireland.
23 February 2009 The UK government announced a renegotiated business plan for the state-owned Northern Rock bank. The main elements of the new agreement were an increase in the government’s contribution to the bank’s capital base of £3 billion and an end to the policy under which the bank would not seek to wind down its mortgage lending as existing mortgages came up for renewal.
25 February 2009 Italy’s Finance Ministry approved a €12 billion recapitalization plan for Italian banks.
26 February 2009 Details were announced of the terms of the government’s Asset Protection Scheme. Under the scheme eligible institutions were able to insure 90 per cent of losses on existing loans subject to an excess or ‘first loss’. The terms of the fee and the extent of the ‘first loss’ would be decided on a case-by-case basis. The scheme would run for at least five years. Participation in the scheme would also include guarantees of sustained lending to individuals and businesses and the adoption of approved remuneration policies.
The first participant under the scheme was announced as Royal Bank of Scotland (RBS). RBS intended to insure £325 billion of loans for a fee of 2 per cent of the value of the assets insured (£6.5 billion). The first loss in this case was £19.5 billion and the 2009 lending commitments are £9 billion of additional mortgage lending and £16 billion of additional business lending.
The government also announced a further capital injection of £13 billion into RBS and committed to subscribe for an additional £6 billion at RBS’s option.
RBS revealed annual losses of £24 billion.
27 February 2009 Lloyds TSB announced profits before tax for 2008 of £807 million.
These profits excluded losses by the HBOS group of £10.8 billion.
2 March 2009 HSBC announced pre-tax profits of £6.5 billion and a rights issue of £12.5 billion. American Insurance Group (AIG) announced a $61.7 billion loss in the fourth quarter of 2008, the largest in US corporate history.
The US Treasury Department and the Federal Reserve announced a restructuring of the government’s assistance to AIG in order to stabilize the company and enhance its capital and liquidity.
5 March 2009 The Bank of England announced that it would undertake a policy of creating new money, known as ‘quantitative easing’. The Bank would purchase £75 billion of assets using the new money. The aim was to boost the economy and prevent inflation undershooting its 2 per cent target. This was accompanied by a further interest rate cut to 0.5 per cent (from 1 per cent). Although the 0.5 per cent rate was the floor for UK interest rates in the crisis, the level of quantitative easing was increased during the subsequent months.
The ECB cut interest rates to 1.5 per cent from 2 per cent.
7 March 2009 The Lloyds Banking Group announced participation in the Asset Protection Scheme and that it would swap £4 billion preference shares held by government for new ordinary equity shares. Lloyds intended to insure £260 billion of loans for a fee of £15.6 billion to be paid for in the issuance of further ‘B’ shares. Under the agreement the government would not take up voting shares such that its holding exceeds 75 per cent. The first loss in this case was £25 billion, and the lending commitments were £3 billion of additional mortgage lending and £11 billion of additional business lending over the next 12 months.
9 March 2009 The FTSE 100 hit a six year low of 3,460.
12 March 2009 FSA chief executive Hector Sants delivered his ‘People should be very frightened of the FSA’ speech.
18 March 2009 The Fed steps up its policy of ‘credit easing’ similar to the quantitative easing employed by the Bank of England: ‘to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months.’ This is in addition to the $1.25 billion of mortgage-backed securities and $200 billion of agency debt that would be purchased in 2009.
23 March 2009 The US Treasury announced details of the public-private investment fund purchase of toxic loans and securities. Using $75–100 billion of TARP funds, the Treasury would invest in the purchase of toxic assets that remain difficult to sell on the market. Reducing risk to encourage private investment, the Fed made available low-interest loans for purchasing securities while the FDIC offered guarantees against losses on loans. The Treasury hoped the investment fund would initially make $500 billion of purchases, potentially rising to $1 trillion; profits would be shared equally by the Treasury and private sector.
26 March 2009 The US Treasury unveiled plans for a new regulatory framework. The framework detailed four components of regulatory reform: addressing systemic risk, protecting consumers and investors, eliminating gaps in the regulatory system and fostering international co-ordination.
30 March 2009 The Dunfermline Building Society – which announced £26 million in losses, principally arising from its residential and commercial mortgage assets – was taken over by the Nationwide Building Society. The Treasury took on approximately £1.5 billion in residual bad assets.
2 April 2009 G20 world leaders’ summit held in London’s Docklands. They jointly pledged to repair the financial system, restore lending and rebuild trust. There was a commitment to a $1 trillion plan to stimulate the global economy, most channelled through the IMF.
The ECB cuts its main refinancing rate to 1.25 per cent from 1.5 per cent.
1 May 2009 The Treasury Select Committee released the report ‘Banking Crisis: dealing with the failure of the UK banks’.
7 May 2009 Barclays announced a pre-tax profit of £1.372 million for the first quarter of 2009 – 15 per cent higher than the first quarter of 2008.
The Lloyds Banking Group announced a £826 million profit for the first quarter of 2009. However, it also issued a profit warning suggesting that it was expecting to make a loss for 2009.
The Bank of England voted to continue its policy of quantitative easing, and increases the size of its asset purchase fund by £50 billion to £125 billion.
The European Central Bank announced that it would lower its main refinancing rate to 1 per cent and continue to provide unlimited short-term and longer-term liquidity to the market for at least a further 12 months.
The ECB also announced its intention to purchase €60 billion of Euro-denominated covered bonds (a particularly safe form of asset-backed security) from primary and secondary markets.
The US Treasury and Federal Reserve release the results of their ‘stress tests’ under the Supervisory Capital Assessment Program. The Treasury stated that: ‘The assessment announced today will help strengthen the lending capacity of banks, with greater transparency and actions to reinforce the amount of capital banks hold against the risk of future losses.’ Of the 19 financial institutions facing the test, the Treasury concluded that 10 would require further capital: Bank of America, $33.9 billion; Citigroup, $5.5 billion; Fifth Third Bancorp, $1.1 billion; GMAC, $11.5 billion; KeyCorp, $1.6 billion; Morgan Stanley, $1.8 billion; PNC Financial Services Group, $0.6 billion; Regions Financial Corporation, $2.5 billion; Sun Trust Banks, $2.2 billion; Wells Fargo, $13.7 billion.
8 May 2009 RBS announced a pre-tax loss of £44 million for the first quarter of 2009. Losses rose to £857 million after tax and shareholder payouts.
11 May 2009 HSBC announced that it had made a ‘resilient’ start to 2009 with profits exceeding those made in the first quarter of 2008.
4 June 2009 The Bank of England maintained its headline interest rate at 0.5 per cent, and voted to continue with its asset purchase facility.
The Federal Reserve Bank of New York President, William Dudley, warned that the revival of the Commercial Mortgage-Backed Security (CMBS) market was ‘essential to stabilising the commercial real estate market’ adding if it did not revive, a ‘vicious circle’ would be created that would ‘likely further constrain credit availability’.
9 June 2009 Ten US banks in receipt of government support were set to repay the US Treasury a total of $68 billion. The banks include American Express, Goldman Sachs, JP Morgan Chase and Morgan Stanley.
12 June 2009 Barclays agreed to the sale of its Global Investors fund management firm to money market firm Blackrock for £8.2 billion.
25 June 2009 The Bank of England’s six monthly ‘Financial Stability Report’ noted that ‘market sentiment has improved in recent months . . . Perceptions of banks’ resilience have improved . . . Market contacts report somewhat better conditions in funding markets, with signs that creditors are willing to provide finance without government guarantees, though term funding in unsecured money markets remains constrained. Notwithstanding these positive developments, balance sheets of banks internationally remain weak . . . As long as these balance sheet vulnerabilities persist, there is a risk to the banking system from further adverse economic or financial sector developments, which could in turn affect lending and economic recovery’.
2 July 2009 The Swedish central bank, Riksbank, announces that it will cut its deposit rate to 0.25 per cent, described by the Financial Times as ‘uncharted territory’.
6 August 2009 The Bank of England increases its quantitative easing by a further £50 billion to £175 billion, while maintaining interest rates at 0.5 per cent.
3 November 2009 The Treasury announced that Lloyds would not after all join the Asset Protection Scheme and would instead raise £21 billion through a shareholder rights issue. RBS reduced the assets insured under APS to £282 billion.
5 November 2009 The Bank of England increases its quantitative easing by a further £25 billion to £200 billion, while maintaining interest rates at 0.5 per cent.
25 November 2009 The Chancellor told the Commons that the Bank of England provided liquidity to Halifax Bank of Scotland and Royal Bank of Scotland from October 2008. The support provided peaked at £36.6 billion for RBS (17 October 2008) and £25.4 billion for HBOS (13 November 2008), and in return the banks deposited collateral at the Bank of England and were charged fees. The Financial Times reported that ‘although Lloyds shareholders were told [during the acquisition process] HBOS would have to “substantially rely for the foreseeable future” on Bank of England liquidity support, they found out the extent of the stricken bank’s problems’ only when the Chancellor made his statement to the House. The Chancellor said ‘there has been no cost to the taxpayer’, and added that the Treasury had provided an indemnity to the Bank in respect of its liquidity operations.
Dubai’s Department of Finance asked for a standstill (until May 30) on all financing to the heavily indebted Dubai World and its troubled property unit Nakheel. As a result, the next day the FTSE 100 fell by 3.2 per cent with financial shares badly hit (Barclays shares were down 8 per cent).
9 December 2009 In the pre-Budget report, the UK government announced a temporary bank payroll tax of 50 per cent would apply to discretionary bonuses above £25,000 awarded in the period from the pre-Budget report to 5 April 2010 for each individual employee.
18 December 2009 In its six-monthly ‘Financial Stability Report’, the Bank of England reported that ‘The financial system has been significantly more stable over the past six months, underpinned by the authorities’ sustained support for the banking system and monetary policy measures’. It went on to say that ‘Activity in many capital markets has resumed, reducing financing risks for some borrowers. The market rally has boosted bank profits and lowered concerns about potential future losses, and banks have raised further external capital’. It added that ‘overstretched balance sheets will take time to adjust fully. Around the world, a number of borrowers, including in the commercial property sector, have large refinancing needs in the coming years . . . Banks need to reduce leverage further, extend the maturity of their funding and refinance substantial sums as official sector support is withdrawn’.
1 January 2010 Northern Rock is restructured by the government into two parts: (1) ‘Northern Rock plc’, described as the ‘good bank’, which would hold all savings accounts (currently amounting to £19 billion), carry out new lending and hold £10 billion of existing mortgages. It would also hold certain wholesale deposits, and; (2) Northern Rock (Asset Management) plc, the ‘bad bank’, which would hold the majority of the mortgage book – about £50 billion – and repay outstanding government loans.
24 February 2010 The UK government announced that it would withdraw the 100 per cent guarantee to all savers with Northern Rock bank on 24 May 2010, meaning they would revert to the £50,000 limit applying to all other savers with FSA registered savings institutions. The limit was increased to £85,000 later in the year.
25 February 2010 The Royal Bank of Scotland announced a loss of £3.6 billion for 2009, but said it would pay £1.3 billion in bonuses to staff.
9 March 2010 The FTSE 100 was at 57 per cent above the low point reached a year earlier.
24 March 2010 In his Budget Statement, the Chancellor sounded a note of caution, saying: ‘There are still uncertainties. Financial markets are febrile. Oil prices have increased by over 50 per cent. Bank credit, while improved, still remains weak in many parts of the world. Confidence has not fully returned to either businesses or consumers.’
The government also announced its intention to integrate its holdings in Northern Rock Asset Management and Bradford & Bingley, which was viewed as a step towards their sale.
8 April 2010 The difference (or ‘spread’) between yields of Greek government bonds over their German equivalent (Bunds) hit its highest point since Greece joined the European single currency. The spread was 456 basis points, indicating that investors were demanding a premium of 4.56 per cent to hold Greek government bonds compared to Bunds, even though both were denominated in Euro.
12 April 2010 Euro area member states announced that they had agreed upon the terms of the financial support that would be given to Greece, if requested, including up to €30 billion for financing needs.
Reuters reported that ‘together with at least €10 billion expected from the International Monetary Fund in the first year, it could add up to the biggest multilateral financial rescue ever attempted’.
2 May 2010 Greece receives a €110 billion bailout by Eurozone and IMF.
11 May 2010 Conservatives and Liberal Democrats agreed to form the UK’s first coalition government since World War Two.
17 May 2010 Government sets up Banking Commission under Sir John Vickers.
28 Nov 2010 Ireland bails out by UK and other European economies.
5 May 2011 Portugal receives international bailout package.
21 July 2011 Greece provided with second bailout package.
9 August 2011 Rating agency S&P downgrades United States.
12 September 2011 Vickers Commission publishes final report recommending ring fence between retail and investment banking activities.
6 October 2011 Bank of England restarts money creation programme (quantitative easing).
27 June 2012 Barclays fined £290 million over attempts to rig industry interest rate LIBOR.
26 July 2012 European Central Bank President Mario Draghi promises to “do what it takes” to save the Euro.
6 February 2013 RBS fined £390 million over LIBOR-rigging allegations.
22 February 2013 Rating agency Moody’s downgrades UK.
12 June 2013 Stephen Hester quits as chief executive of Royal Bank of Scotland.
19 June 2013 Parliamentary Banking Commission publishes final report.
1 July 2013 Mark Carney succeeds Sir Mervyn King as Bank of England Governor.
17 September 2013 Chancellor announces sale of 6% stake in Lloyd’s worth £3.2 billion.
Source: Woodhouse, John, Jarrett, Tim, and Edmonds, Tim. The credit crisis: a timeline. House of Commons Library: April 2010.