Essay on The Financial Crisis and UK Bank Scandals

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The Financial Crisis and UK Bank Scandals

In September 2007 the UK banking industry began exhibiting symptoms of the financial crisis that started in America in 2006. Northern Rock was in trouble and had to ask the Bank of England for help. When news of this got out customers started queuing around the block to withdraw their money. In 2008 Northern Rock was nationalised, and in 2012 it was bought by Virgin Money.

Today the banking industry can be seen to be on the road to recovery. But on that road there have been potholes of controversy. I'm thinking Libor, excessive bonuses, payment protection mis-selling and foreign exchange manipulation, to name a few.

But before we look at those in a bit more detail, let's quickly recap on the financial crisis and what it did to UK banking. To do that we need to start in the States.

In 2006 American banks started seeing a rapid rate of default against sub-prime mortgages. These mortgages were granted to high risk customers, many of whom didn't understand what they were getting into, and had difficulties repaying the loans. The banks must take some responsibility for their loose lending principles. For instance, they were happy to lend to NINJAs - customers with No Income, No Job or Assets. And they also offered 'teaser' type mortgages, with an initially low interest rate that was hiked up sharply a few months later. With such a rate of default the price of houses dropped substantially, and your average American became poorer,…