Can someone explain the Northern Rock crisis to me please?
The banks that gave out the mortgages to the sub prime borrowers in US offloaded a lot of their bad debts – unfortunately Northern Rock was involved in taking on some of these bad debts ( as many banks were – they saw a possibilty to make money from them) and when it came to light that the bad debts were unlikely to be retreived , Northern Rock got bad press and so their share value started to drop – investors got wind of the dropping price of shares and decided to withdraw their money – all at once – no bank can withstand a lot of that as most of their money is not in cash (liquid assets)- but is invested in property etc.
