HM Treasury

Financial services

Government intervention in the banks

 The financial crisis can be loosely grouped into three distinct stages:

Phase one

The initial credit crisis began in August 2007. A sharp slowdown in US housing data weighed heavily on global financial markets, effectively freezing lending between the banks and within the wider wholesale market.

In the UK, Northern Rock ran into severe difficulties as it was heavily dependent on wholesale markets to fund its activities – ultimately leading to the bank being taken into temporary public ownership in February 2008. The vulnerability of financial institutions during the crisis exposed the deficiency of the framework to supervise and regulate banks.

Phase two

During the summer of 2008, global financial markets remained fragile and it was clear the global economy had entered a period of slowdown. The collapse of Lehman Brothers (15 September 2008) caused widespread fear that spread to the rest of the financial sector.

During this time, the UK’s banking industry was affected by problems at Bradford & Bingley (September 2008) – which saw a spike in homeowners unable to pay their mortgages. A series of Icelandic banks (October 2008) also failed, and rapidly escalating financial turmoil saw the then Government introduce market-wide support measures during October 2008. These included a bank recapitalisation scheme that saw the Government take stakes in both Lloyds Banking Group and Royal Bank of Scotland.

Phase three

As the credit crisis continued to deepen through 2008 and into 2009, the previous Government provided further support to the affected institutions, including announcing an Asset Protection Scheme in January 2009. The UK Authorities – the Treasury, Bank, and Financial Services Authority – also intervened in Dunfermline Building Society in 2009.

Back to top

Share

Facebook LinkedIn Twitter Digg RSS Stumbleupon Delicious Reddit Google Plus Share

Factsheet

Financial Stability index