The Global Financial Crisis
TIMELINE OF EVENTS
2007: SUB-PRIME MARKET COMPLICATIONS
The US housing market weakens as housing prices fall and borrowers increasingly default on sub-prime loans.Governmental review of rating mechanisms for subprime lending and related derivatives instruments revealsthat instrument rating formulas were nearly identical to those employed in the traditional mortgage market,and incorrectly assumed similar rates of rescheduling and default.
APRIL-AUGUST 2007: SUB-PRIME CONTAGION
April: New Century Financial, which specialises in sub-prime mortgages, files for Chapter 11 bankruptcyprotection.
New Century’s collapse
begins to impact banks which had purchased New Century instrumentsaround the world.July: Bear Stearns informs investors that they will receive little or none of the money invested in two of itshedge funds, following a refusal by other banks to assist in a bailout.
AUGUST 2007: THE SCOPE OF THE CRISIS EXPANDS
9 August 2007: BNP Paribas freezes investor withdrawals from two hedge funds, claiming that the assetscannot be valued accurately due to a "complete evaporation of liquidity" in the market. The European CentralBank pumps 95bn euros (£63bn) to try to improve liquidity, adding another 108.7bn euros in the followingdays. The Fed, the Bank of Canada and the Bank of Japan also launch interventions.17 August: The Fed
continues to follow a “cheap money” solution, cutting its ba
nk lending rate 50 basis pointsto 5.75%.28 August: German regional bank Sachsen Landesbank nears sub-prime based collapse, and is sold toLandesbank Baden-Wuerttemberg.
SEPTEMBER 2007: A BANK RUN
3 September: German corporate lender IKB announces a $1bn loss on investments linked to the US sub-primemarket.
IKB’s difficulties lead to an investor run –
the first in a long series of such withdrawals (see Table II).4 September: LIBOR hits 6.7975%. Banks restrain lending out of concerns about one
other’s solvency, or are
themselves unable to secure financing.13 September: Northern Rock Bank (UK) is granted emergency financial support from the Bank of England, inthe latter's role as lender of last resort. On 14 September, depositors withdraw £1bn in
the UK’s biggest
bank run for more than a century, until the government issues a depository guarantee.18 September: The Fed cuts its main interest rate to 4.75%.19 September: The Bank of England announces that it will auction £10bn, reversing a prior no-injection policy.
Compiled from the Financial Times, Forbes, BBC and CreditWriteDowns.com.