The world has changed

A year earlier, British bank Northern Rock had gone bankrupt and ended up being nationalised. But then a year passes with no major surprises. Was it just a fright? Until September 15, 2008, when the US bank Lehman Brothers went under. The world wakes up to the biggest crisis since 1973 (the oil crisis) or even 1939. Here are the key moments:

9 August 2007 

BNP Paribas freeze three of their funds invested in subprime mortgage debt due to a “complete evaporation of liquidity . . . [in the market] . . . indicating that they have no way of valuing the complex assets in them – known as collateralised debt obligations (CDOs) or packages of sub-prime loans. It is the first major bank to acknowledge the risk of exposure to sub-prime mortgage markets.”  

The next day, central banks co-ordinate efforts to increase liquidity for the first time since the aftermath of the September 11, 2001 terrorist attacks. Adam Applegarth, Northern Rock’s Chief Executive, later says that it was “the day the world changed.” 

12 September 2007 

Citibank borrows $3.375 billion from the Fed discount window, prompting then-President of the Federal Reserve Bank of New York Timothy Geithner to call the CFO of Citibank. Over four days in late August and early September, foreign banks borrowed almost $1.7 billion through the discount window. 

14 September 2007 

British bank Northern Rock has borrowed large sums of money to fund mortgages for customers, and needs to pay off its debt by reselling (or ‘securitising’) those mortgages in the international capital markets. But now that demand for securitised mortgages has fallen, Northern Rock faces a liquidity crisis and needs a loan from the British Government.  

This sparks fears that the bank will shortly go into liquidation – prompting customers to queue around the block to withdraw their savings. It is the first run on a British bank for 150 years. Following the failure of two private takeover bids Northern Rock is nationalised 

7 September 2008 

The US Government bails out Fannie Mae and Freddie Mac – two huge firms that had guaranteed thousands of sub-prime mortgages and which at that point owned or guaranteed about half of the U.S.’s $12 trillion mortgage market – effectively nationalising them. 

“This causes panic because almost every home mortgage lender and Wall Street bank relied on them to facilitate the mortgage market and investors worldwide owned $5.2 trillion of debt securities backed by them.” 

15 September 2008 

Heavily exposed to the sub-prime mortgage market, the American bank Lehman Brothers files for bankruptcy, prompting worldwide financial panic. 

25-29 September 2008 

Two more American banks collapse – Washington Mutual and Wachovia. 

30 September 2008 

Just days after becoming the first euro zone country to slide into recession, Ireland becomes one of the first to respond to the Lehman Brothers collapse, guaranteeing 440 billion euros of liabilities for six Irish-owned institutions and a foreign-owned bank. On 16 December 2010 the Irish Government, the European Commission, the European Central Bank and the International Monetary Fund sign the Economic Adjustment Programme for Ireland. On 15 December 2013, Ireland exited the programme 

13 October 2008 

To avert the collapse of the UK banking sector, the British Government bails out several banks, including the Royal Bank of Scotland, Lloyds TSB, and HBOS. The deal is thrashed out over the weekend and well into the small hours of Monday morning. 

(Sources: The Guardian, Wikipedia, Reuters)