Northern Rock Bank

Introduction Northern Rock is a bank operating under the umbrella of Virgin Money in the United Kingdom. It was established in 1965 and 30 years down the line, it had acquired approximately 53 building societies in England.Advertising We will write a custom case study sample on Northern Rock Bank specifically for you for only $16.05 $11/page Learn More Over the years this bank was being considered as one of the top lenders in the UK, especially in relation to mortgages. Prior to 2007, Northern rock had an investment plan which was to result in securitization. This according to Milne Wood involved â€Å"borrowing heavily in the UK and international money markets, extending mortgages to customers based on this funding and then re-selling these mortgages on international capital markets† (518). This, however, failed in 2007, when, owing to the global financial crisis, the demand for credit facilities from investors went down and Northern Rock was un able to pay back the credit it had obtained from the money markets. Lender of last resort This is a facility that allows banks to survive a financial crisis. It is mostly offered by the central bank. When Northern Rock was faced with the liquidity crisis in 2007, it looked up to the Bank of England for emergency support but this was not possible since it could not provide the facility. Many scholars, including Vesala (2006), Herring (2007), and Shin (2009) blame the situation in Northern Rock to the inability of the Bank of England to act promptly indicating that had it performed its role as a lender of last resort, the bank run would have been avoided. In fact, Shin indicates that â€Å"in its role as a lender of last resort, the Bank of England had been able to exert significant moral suasion over the banking sector, and the discount office was able to obtain information from banks on a purely informal basis† (2009,p.103).Advertising Looking for case study on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More Other scholars believe that the Bank of England failed to act because Northern Bank had not provided it with sufficient information concerning its discount facilities. They also argue that the management of Northern Rock failed to heed to liquidity warnings and this acted as a hindrance when they needed assistance. These claims are, however, refuted by Freixas et al (2009). He asserts that a central bank is expected to perform its role irrespective of the actions of the other party (151). He states that â€Å"even when the central bank does not have the formal statutory responsibility for banking supervision, it can still obtain the information it needs to act as lender of last resort† (2009,p.152). Kane (2008) believes that the Northern rock issues exposed the faults in the government with regard to dealing with financial crisis. These faults include â€Å"the workings of emergen cy liquidity assistance, some others the workings of deposit insurance and some others the insolvency and pre-insolvency arrangements† (2008, p.50). All these boil down to the functions of the Central bank as a lender of last resort. Financial crises in banks are one of the greatest challenges in most economies, since failure of banks spells out a failure in the entire economy. Liquidity lending is therefore considered to be an important factor since it is usually the solution to most banks going through a crisis. Some of the instruments available to governments dealing with financial crises include â€Å"the central bank’s role as a lender of last resort, deposit insurance schemes, government’s policies to shield depositors’ insolvency laws, among other preventive measures† (FSA internal Audit division, 2008, p. 39). Despite all the other actions, the lender of last resort factor is the most effective since it provides the banks with the credit fac ilities to continue with their operations promptly. Prior to the crisis, Northern Rock was a successful institution though not influential to the point of thinking its failure would affect the economy in any way. This issue however attracted the attention of many financial analysts since it brought out the weaknesses of the Bank of England in dealing with crises faced by the banks.Advertising We will write a custom case study sample on Northern Rock Bank specifically for you for only $16.05 $11/page Learn More Due to this exposure, the government made a commitment to offer the required liquidity, and this worked since the bank run in Northern Rock stopped instantly. House of Commons (2008) therefore made a conclusion from this issue that the run would have been avoided all together, if all parties had been playing their roles effectively. This can, however, not be blamed on the Bank of England since it had not dealt with such an issue in the recent past . The activities in relation to acting as a lender of last resort were rarely carried out, hence the policies were outdated. This explains why the situation caught all relevant bodies including Northern Rock itself by surprise (House of Commons, 2008, p. 23). Northern rock and the FSA In the view of financial analysts, the crisis that hit Northern Rock in 2007 was predictable and some even argue that the crisis was not related to the activities of Northern bank per se. It is believed that the Financial Services Authority (FSA) played a major role in this. An article by Bank of England (2007) made an observation that FSA had given Northern Rock warnings concerning â€Å"the evolving trends in the market which included; sharp asset growth, systemic underpricing of risk, and the risk shifting characteristics of new financial instruments which would not be as water tight as they appeared to be† (2007,p. 2). FSA also indicated that the strategies being used by Northern Rock were u nstable since they were depending on large scale market funding; hence, placing the institution in a risky liquidity position. Besides this, FSA had also made an observation in the government’s regulatory system which it claims had a number of loopholes that exposed the financial institutions to issues similar to those of Northern Rock. These, according to FSA (2008) included â€Å"a fundamental flaw in the depository protection scheme, lack of established special bankruptcy regime for banks, lack of predictable resolution regime for handling troubled banks and the existence of an institutional structure of financial supervision that separated responsibility for systemic stability and lender of last resort from prudential supervision of individual banks† (FSA, 2008, p. 33).Advertising Looking for case study on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More Owing to the financial stability that had been witnessed in the region over the years, these observations seemed not to be having any ground, until the real risk was witnessed in Northern Rock, and this acted as a wakeup call to FSA. At the beginning of 2007, FSA considered Northern Rock as one of the best performing financial institutions in the UK. What it failed to realize at that time were the mortgage risks that it was exposed to owing to the fact that the institution dealt mostly with international investors. This risk was brought about by the financial crisis that was being witnessed all over the world during that period. Observations made later on indicated that â€Å"by mid-September, it had become apparent to Northern Rock that longer term funding markets were closed to it. Rollovers were largely continuing but at shorter and shorter maturities and Northern Rock lacked the option to draw on sufficient prearranged contingency liquidity lines of credit and did not benefit f rom a third party injection of capital† (FSA, 2008,p. 34). Due to this, FSA made an endorsement indicating that the Bank of England was deemed to provide liquidity facilities to all the banks that needed this kind of support in the UK, including Northern Rock. This crisis mainly focused on three institutions, the Bank of England, the treasury and FSA, owing to their joint responsibility of ensuring stability in the financial sector. FSA is blamed for permitting Northern Rock to raise its dividends irrespective of the already messed up financial position. An article by FSA Internal Audit Division (2008) supports these allegations by indicating that, â€Å"in in their own internal audits of the experience and compilation of the lessons learned from the Northern Rock failure contained a broad list of problems within FSA which included lack of rigor in the analyses conducted and failure to devote insufficient resources to monitoring what are regarded as high impact situationsâ₠¬  (Audit Division, 2008, p. 42). This report indicates that the major issues that led to this failure included organizational shortfalls, lack of sufficient skills in the supervisors, and poor methods of supervision, especially in large institutions operating at international levels. From the discussion, it is clear that FSA was in a position to save Northern Rock from the downfall, had it acted on the early signs. In fact, financial researchers such as Milne Wood (2008), Shin (2009) and Herring (2007) indicated that FSA devoted little time to the process of checking the level of stress tolerance in Northern Rock, hence ignoring many factors that eventually worked against the institution. Shin (2009) specifically points out that â€Å"insufficient attention was given to the banks challenging governance programs and risk mitigation processes† (2009, p.110). Herring (2007) concurrently indicates that â€Å"FSA not only ignored numerous early warning signs of troubles with N orthern Rock, but also ignored a breach of required minimum capital standards early in 2007† (p.10). Besides these, it was also noted that the bank failed to inform its stakeholders of this failure, and FSA was aware of this, but failed to take action. From this, a conclusion can be drawn that despite the fact that Northern Rock was responsible for its own peril, FSA also played a major role of not intervening where it would have been and also assuming the warning signs that were so loud and clear. Failure of prudential supervision In any financial setup, there are four aspects that need to be considered to come up with a stable financial system. The Bank of England (2007) indicates that â€Å"the first aspect is prudential regulation of financial firms, second is systemic stability, third is the lender of last resort role and finally the conduct of business regulation and supervision† (Bank of England,2007,p. 6). The issue in question especially in relation to the Nort hern Rock problem is the institution responsible for prudential supervision, whether it is the bank of Europe, the treasury or FSA. Irrespective of the institution responsible, this type of supervision is mandatory in financial institutions, failure to which results in cases such as what was experienced in Northern Rock (Freixas et al, 2007, p. 12). This conflict on the question of supervision mandate led the government to redefine the roles of the institutions in the financial sector. As a result of this, it was realized that supervision lies with FSA. The crisis in 2007 created the need to develop an official set of organizations and practices for assisting in the recovery of failing banks. This led to the officiating of a memorandum of understanding between the three bodies, that is, treasury, FSA and the Bank of Europe. A report by FSA internal audit division (2008) indicated that there were five basic standards that came with this agreement and these were â€Å"the existence o f a clear division of responsibilities, appropriate accountability arrangements, the avoidance of duplication of responsibilities, exchange of relevant information and mechanisms for crisis management† (2008,p.50). The causes behind the problem of Northern rock are interrelated to the extent that it is difficult to tell exactly what the main cause of this issue was. However, it was realized that prudential supervision of the banking institution was being conducted in a poor way and this is therefore deemed to be the greatest contributor to the whole problem. According to the Bank of England (2007) â€Å"this institution had been a pioneer in risk based supervision; focusing attention where it is most important† (2007, p. 8). This credit was however withdrawn after the Northern Rock crisis which revealed the poor laid supervision strategies. Many financial analysts believe that FSA was in a position to foresee this situation, long before it occurred. From this, it is evi dent that the Northern Rock crisis depicted a high level of failure in the prudential supervision of banking institutions. These failures according to FSA (2008) include â€Å"reliance upon seriously deficient accounting and capital adequacy standards; failure to monitor institutions in a timely, effective, and on-going fashion; failure to intervene appropriately when problems were identified; and promoting the welfare of the regulated institutions and the regulatory agency rather than the insurance fund or the taxpayer† (FSA, 2008, p.43). In fact, hearings in the House of Commons – a committee responsible for establishing the cause of the problems surrounding Northern Rock, indicated that FSA failed to perform effectively. House of Commons alleged that this was by way of â€Å"failing to monitor the institution and allowing Northern Rock to increase its dividends despite its troubled financial position† (2008, p.23). The supervisory evaluations of Northern Rock conducted by FSA did not put much emphasis on liquidity issues. Conclusion From the above discussion of the issues surrounding the Northern Rock problems, it is evident that these problems could have been avoided if all the parties concerned, that is, Northern Rock bank itself, the Bank of Europe and FSA were responsible for the actions that were taken before 2007. Northern Bank was responsible for the crisis in the sense that it did not perform a long term analysis of its actions. In its operations, it failed to consider the possibility of liquidity risks in the financial market. Bank of Europe was responsible in the sense that it did not act promptly as a lender of last resort in providing the credit requested by Northern Bank when it started experiencing the liquidity challenges. References Bank of England 2007, Financial Stability Report. Web. Freixas, X, Giannini, C, Hoggarth, G Soussa, F 2009, ‘Lender of last  Resort: a review of the literature’, Financial Sta bility Review, Vol. 7, pp. 151–167. FSA (2008) ‘The supervision of Northern Rock: a lessons learned review’, Internal Audit, pp. 32 – 43 FSA Internal Audit Division 2008, ‘The Supervision of Northern Rock’ A Lessons Learned Review, pp. 37 – 56 Herring, R 2007, ‘Resolution Strategies: Challenges Posed by Systemically Important Banks’, lecture at Regional Seminar on Financial Crisis Management, pp. 5 – 16 House of Commons 2008, ‘The run on the Rock’, Treasury Committee, Vol. 1, pp. 23 Kane, E 2008, ‘Regulation and supervision: an ethical perspective’, Principles v Rules in Financial Regulation, Vol. 2 no. 5, pp. 48 – 56 Milne, A Wood, G 2008, ‘Banking Crisis Solutions: Old and New’, Review (Federal Reserve Bank of St Louis), Vol. 1 no. 2, pp. 517–530. Shin, H 2009 ‘Reflections on Northern Rock: The Bank Run that Heralded the Global Financial Crisis’, Jo urnal of Economic Perspectives, Vol. 23, No. 1, pp. 101–119 Vesala, J 2006, ‘Which Model for Prudential Supervision in the EU’ Monetary Policy and Financial Market Stability, Vol. 10, No. 1, pp.99-105. This case study on Northern Rock Bank was written and submitted by user Trinity Osborne to help you with your own studies. You are free to use it for research and reference purposes in order to write your own paper; however, you must cite it accordingly. You can donate your paper here.

The Earths Core - Its Structure and Possible Composition

The Earth's Core - Its Structure and Possible Composition A century ago, science barely knew that the Earth even had a core. Today we are tantalized by the core and its connections with the rest of the planet. Indeed, were at the start of a golden age of core studies. The Cores Gross Shape We knew by the 1890s, from the way Earth responds to the gravity of the Sun and Moon, that the planet has a dense core, probably iron. In 1906 Richard Dixon Oldham found that earthquake waves move through the Earths center much slower than they do through the mantle around it- because the center is liquid. In 1936 Inge Lehmann reported that something reflects seismic waves from within the core. It became clear that the core consists of a thick shell of liquid iron- the outer core- with a smaller, solid inner core at its center. Its solid because at that depth the high pressure overcomes the effect of high temperature. In 2002 Miaki Ishii and Adam Dziewonski of Harvard University published evidence of an innermost inner core some 600 kilometers across. In 2008 Xiadong Song and Xinlei Sun proposed a different inner inner core about 1200 km across. Not much can be made of these ideas until others confirm the work. Whatever we learn raises new questions. The liquid iron must be the source of Earths geomagnetic field-   the geodynamo- but how does it work? Why does the geodynamo flip, switching magnetic north and south, over geologic time? What happens at the top of the core, where molten metal meets the rocky mantle? Answers began to emerge during the 1990s. Studying the Core Our main tool for core research has been earthquake waves, especially those from large events like the 2004 Sumatra quake. The ringing normal modes, which make the planet pulsate with the sort of motions you see in a large soap bubble, are useful for examining large-scale deep structure. But a big problem is nonuniqueness- any given piece of seismic evidence can be interpreted more than one way. A wave that penetrates the core also traverses the crust at least once and the mantle at least twice, so a feature in a seismogram may originate in several possible places. Many different pieces of data must be cross-checked. The barrier of nonuniqueness faded somewhat as we began to simulate the deep Earth in computers with realistic numbers, and as we reproduced high temperatures and pressures in the laboratory with the diamond-anvil cell. These tools (and length-of-day studies) have let us peer through the layers of the Earth until at last we can contemplate the core. What the Core Is Made Of Considering that the whole Earth on average consists of the same mixture of stuff we see elsewhere in the solar system, the core has to be iron metal along with some nickel. But its less dense than pure iron, so about 10 percent of the core must be something lighter. Ideas about what that light ingredient is have been evolving. Sulfur and oxygen have been candidates for a long time, and even hydrogen has been considered. Lately, there has been a rise of interest in silicon, as high-pressure experiments and simulations suggest that it may dissolve in molten iron better than we thought. Maybe more than one of these is down there. It takes a lot of ingenious reasoning and uncertain assumptions to propose any particular recipe- but the subject is not beyond all conjecture. Seismologists continue to probe the inner core. The cores eastern hemisphere appears to differ from the western hemisphere in the way the iron crystals are aligned. The problem is hard to attack because seismic waves have to go pretty much straight from an earthquake, right through the Earths center, to a seismograph. Events and machines that happen to be lined up just right are rare. And the effects are subtle. Core Dynamics In 1996, Xiadong Song and Paul Richards confirmed a prediction that the inner core rotates slightly faster than the rest of the Earth. The magnetic forces of the geodynamo seem to be responsible. Over geologic time, the inner core grows as the whole Earth cools. At the top of the outer core, iron crystals freeze out and rain into the inner core. At the base of the outer core, the iron freezes under pressure taking much of the nickel with it. The remaining liquid iron is lighter and rises. These rising and falling motions, interacting with geomagnetic forces, stir the whole outer core at a speed of 20 kilometers a year or so. The planet Mercury also has a large iron core and a magnetic field, though much weaker than Earths. Recent research hints that Mercurys core is rich in sulfur and that a similar freezing process stirs it, with iron snow falling and sulfur-enriched liquid rising. Core studies surged in 1996 when computer models by Gary Glatzmaier and Paul Roberts first reproduced the behavior of the geodynamo, including spontaneous reversals. Hollywood gave Glatzmaier an unexpected audience when it used his animations in the action movie The Core. Recent high-pressure lab work by Raymond Jeanloz, Ho-Kwang (David) Mao and others has given us hints about the core-mantle boundary, where liquid iron interacts with silicate rock. The experiments show that core and mantle materials undergo strong chemical reactions. This is the region where many think mantle plumes originate, rising to form places like the Hawaiian Islands chain, Yellowstone, Iceland, and other surface features. The more we learn about the core, the closer it becomes. PS: The small, close-knit group of core specialists all belong to the SEDI (Study of the Earths Deep Interior) group and read its Deep Earth Dialog newsletter. And they use the Special Bureau for the Cores website  as a central repository for geophysical and bibliographic data.

Behaviorism and Learning Term Paper Example | Topics and Well Written Essays - 1000 words

Behaviorism and Learning - Term Paper Example Generally, it has been observed that behaviors are derived from perceptions. Most of the practitioners have supported this statement through one way or other. This paper briefly discusses the experiments of renowned theorist in the field of psychology. It is believed that at the time of birth, human mind is tabula rasa which means a blank slate. As the mind starts to grow up and gathers information from the outside world (unconditioned stimuli), the behavior of the child starts to shape (conditioned response). By considering the consequences of the experiments discussed in this paper, it can be stated that behaviors are derived from perception and therefore, it can be stated that unconditioned stimuli leads to conditioned response. Summarize behaviorism and how it has affected the understanding of learning. Be sure to include the following information: Introduction The fundamental principle upon which behaviorism operates is ‘stimulus-response’. Its basic concept states that all behaviors are caused primarily by external stimuli. Behaviorism assumes that a learner is, in essence, a passive subject which responds to external stimuli. Under the theory of behaviorism, it is believed that at birth, human mind is tabula rasa which means a clean slate and behavior is shaped as soon as the mind starts to conceive external information and stimuli.... Out of all those, some major contributors of behaviorism are: Pavlov (1897) - In order to investigate the behaviorism theory, Pavlov conducted a research studying digestion in dogs. Watson (1913) – Watson published an article naming â€Å"Psychology as the Behaviorist Views It† and initiated a behavioral school of psychology. Watson and Rayner (1920) – programmed an orphan called Little Albert aka Albert B in order to scare the white rat. Thorndike (1905) – formulated the â€Å"Law of Effect† Skinner (1936) – Skinner was the first one who introduced the concepts of shaping and conditioning. Skinner wrote â€Å"The Behavior of Organisms†. Clark Hull’s (1943) – published â€Å"Principles of Behavior†. B.F. Skinner (1948) – formalized Walden Two in which he explained the foundation of utopian society upon behaviorist principles. Bandura (1963) – combines the concepts of behavioral and cognitive framework in his book called as â€Å"Social Learning Theory and Personality Development†. B.F Skinner (1971) – argues upon the concept that ‘free will is an illusion’ in his book named as â€Å"Beyond Freedom and Dignity† (McLeod, 2007). Main Components of Behaviorism Theory The two major components of Behaviorism Theory are: i. Classic Conditioning Classical conditioning is the fundamental response to stimuli. It is that conditioning in which a programmed or conditioned stimuli is paired with unconditioned stimulus until the conditioned stimulus becomes sufficient enough to educe the response ii. Operant Conditioning Operant conditioning has the basic notion of responding to the results of our actions. Operant conditioning is that component of the theory in which behavior is strengthened when reinforcement is