BusinessCompany NewsNorthern Rock denies its funding model was risky

Northern Rock denies its funding model was risky

Northern Rock executives deny at treasury hearing they ignored warnings about problems in financial markets

Northern Rock
could have avoided the crisis which triggered the first run on a major British
bank in more than 140 years, if it had access to the same funding as US and
European rivals, its chief executive told the
treasury
committee
yesterday.

‘The fundamental cause (for the crisis) was the speed and duration and the
global nature of the liquidity freeze, heightened for us by the fact we didn’t
have access to the same type of borrowing facilities available to banks in the
US and from the ECB (European Central Bank),’ Adam Applegarth, Northern Rock
chief executive, told the treasury committee.

Applegarth – the architect of Northern Rock’s funding strategy to rely on
wholesale markets for three quarters of its funding – Matt Ridley, chairman, and
two other directors denied accusations they had been too aggressive with lending
to homeowners, ignored warnings about problems in financial markets and pursued
a risky funding model.

Asked whether the bank was in denial and denying its responsibilities, Ian
Gibson, senior non-executive director, said: ‘There is absolutely no arrogance.
There is shock and there is distress.’

Further reading:

FSA bosses grilled over Northern Rock

Northern Rock bosses face MP grilling

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