Corporate Rescue, Governance and Risk Taking - Northern Rock and Its International Context

Abstract:     
The rescue of Northern Rock PLC by the Bank of England in September 2007 has been a significant event in the history of British banking and in the wider application of corporate rescue ideas. Following the first run on a British bank in over 140 years, the Bank of England stepped in to lend £28 billion in public funds to the failed bank and to replace its board of directors. Facing a liquidity crisis, but not insolvent, Northern Rock turned to the Bank of England for assistance. This saga is not unique as similar bank rescues are now occurring elsewhere. Their aim is to prop up and maintain confidence in the financial system following the US sub-prime mortgage crisis which caused an international liquidity crisis that led to the demise of many well known financial institutions. Poor corporate governance and defective legal regulation were amongst the key causes of the failure of the FTSE top 100 UK company, Northern Rock PLC. This paper reviews the background factors explaining the collapse of the bank, as well as some of the internal governance factors within the bank that contributed to its financial difficulties and eventual nationalisation by the UK government.

Number of Pages in PDF File: 36

Keywords: UK, banking crisis, corporate rescue, insolvency, corporate governance, nationalisation

JEL Classification: G33, G21, E50, E44

Accepted Paper Series