Mar
15
2012

Essay: Banking Functions and Northern Rock

Sample Essay

The situation was further complicated as the bank failed in its role to improve asset quality which resulted in mortgages being sold to those who were potentially not going to pay up on their obligations. These were packaged and sold further to investors, touting the benefits of diversification would reduce the risks. While the spread of geographic investors may have been achieved through this, the sector diversification was still a problem which produced risk not accounted for and the credit ratings provided by the ratings agencies also did not serve to highlight this fact (Telegrph, 2007).

However, when the ground reality struck that the liabilities would not be paid off; the securitized products were no longer in demand and the source of the heavy profits and growth of the institution abruptly stalled. As the bank had not figured a credit freeze in the money market in its models or accounted for the heavy exposure to one sector, that is the housing market, it failed in many of its functions and obligations which resulted in the failure of a nature not recorded in a while century in the country.

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