What were the principal
features of the business model
adopted by the bank,
including objectives, range of
activities, organizational
structure, growth etc? What
particular risks might one
expect arising from this
business model?
The nature and timing of the
“failure” and major factors
involved
What were the apparent
failings in risk management
processes, governance, and
regulatory oversight?
Northern Rock
Securitization,
rapid growth,
wholesale
funding
reliance,
aggressive
lender.
Funding,
liquidity,
interest rate,
credit risk
Wholesale
funding
problems
(external
shocks), Loss of
confidence due
to regulators
tepid support
(damned by
faint praise),
inadequate dep
ins system,
depositor run
IRB approved?
Liquidity
planning,
Allied Irish
WaMu
Forex trading, foreign Consumer financial
subsidiary
services (dept store
model), rapid growth,
Divorce from head
geog expansion,
office (oversight),
acquisitions, subprime
small staff – non
loans – risky complex,
segregation of duties real estate purchases,
credit cards
Superior
Rapid Growth, aggressive
takeovers, mortgage banking,
sub prime (incl autos), conc
family ownership,
securitization, retention of
equity tranche
Risks – valn/acc,
underpricing of loans,
overpricing dep in rates
Rogue trading, f/x
losses due to bogus
assets, bogus
earnings,
Growth in impaired
assets, share price
collapse, takeover
rejected, diluting sale
of equity, shareholder
revolt, credit rating
downgrade, run and
OTS closure
Regulator concerns, holding
co formed to take on
residuals, uninsured
depositor run,
Updating of VAR
models not embedded
in processes, back
office failings to
Risk managers
marginalized, pressure
on staff to grow loans,
push risky “lucrative”
Poor accounting ,
management oversight,
regulators recognized issues
bu didn’t follow up
Could the problems have been
identified beforehand?
How were the problems
resolved, and what
alternatives might have been
considered?
Conc of funding
risk, rollover
risk (duration of
wholesale
funding), better
FSA practices,
FSA believed
management
good
Guarantee of
deposits,
nationalization,
private sales
option failed
check counterparties
Prime brokers made
comments, expert
staff should have
recognized
inconsistencies,
trading levels,
loans CEO dominance,
Rapid expansion, risk
concentration,
Fired Rusnak, bank
absorbed losses
FSLRC takeover
Rapid growth, brokered
deposit int rates, high ratio of
repos as fundings, risky
lending, complex
derives/assets, large offbalance sheet obligations
Closed by regulators,
compensation by owners and
auditors, regulators criticized
for continuing same
activities after takeover.