HSBC and Northern Rock… harbingers of collapse?
Of all the banks that stood out during the credit crisis of 2007-2008, Britain’s Northern Rock Bank was the poster child of how the public will respond to the next financial collapse, especially when it occurs due to the destruction of confidence in the banking system.
Many remember the news clips of people waiting in long lines outside the bank, desperate to get their money out before the institution reached final insolvency. And like today’s so-called trusted overlords of the banking system, financial analysts back then were discounting the actual risks and warnings of bank insolvency, and lying before the public on the true state of Northern Rock.
Hundreds of Northern Rock Plc customers crowded into branches in London today to pull out their savings after the mortgage-loan provider sought emergency funding from the Bank of England.
“There is no risk,” said James Hamilton, an analyst at Numis Securities in London. “The Bank of England said Northern Rock is solvent.” Hamilton said that “as credit turmoil will return to normal, Northern Rock’s business will.” The British Bankers’ Association said there’s “no reason for either mortgage customers or savers to worry.” – Bloomberg
In the end, the propaganda put forth by the establishment was for not as Northern Rock was eventually nationalized, broken into two entities labeled a ‘good bank’ and ‘bad bank’, and their assets were sold off to become a completely new institution under Richard Branson’s Virgin Money banner.
The importance of Northern Rock in the annals of financial history is that it represented the beginning of the 2007 global credit crisis, and started the domino’s falling in both Europe and the United States, where the establishment of new paradigms such as nationalization, and central bank intervention would seek to ensure major institutions would be protected at all costs under the moniker of ‘too big too fail’.
From that point in time we accelerate six and half years later where once again, the signs and warnings are appearing for another major bank that also has the power to collapse the entire Western banking system as Northern Rock did. On Jan. 24, it was reported by the BBC that HSBC has begun implementing withdrawal restrictions for customers seeking to take out their own money or accounts, based on a loose and unpublished policy where depositors are now required to inform the bank of why they are withdrawing money, else the institution will refrain from providing customers their funds.
…The BBC that HSBC is imposing restrictions on large cash withdrawals raising a number of red flags. The BBC reports that some HSBC customers have been prevented from withdrawing large amounts of cash because they could not provide evidence of why they wanted it. HSBC admitted it has not informed customers of the change in policy, which was implemented in November for their own good: “We ask our customers about the purpose of large cash withdrawals when they are unusual… the reason being we have an obligation to protect our customers, and to minimize the opportunity for financial crime.” – Zerohedge
It is not by coincidence that HSBC is now imposing an unpublished withdrawal policy at the same time the global financial system appears to be cracking under the weight of declining investments in the emerging markets. Circumstances in Britain, as well as with several banks in the Eurozone and the U.S., are suddenly facing liquidity problems as losses abroad severely impact the solvency of the Western financial system.
This same example of how overseas investment can affect the solvency of a bank can be found in Cyprus, where a once fundamentally solid institution went insolvent almost overnight due to their investments in toxic assets such as Greek debt.
Like the harbinger that Northern Rock was to the eventual credit crisis in the entire banking system six years ago, there are usually signs and warnings that emerge in one or two pockets that become the spark that brings an entire financial system to the brink of collapse. And as we begin to see those signs coming from China, India, Europe, and the U.S. markets, and as these markets continue to accelerate downward in an ever growing rapid spiral, very few in the media will scream out in anxious fear, “This is it”, but instead, like with Northern Rock in 2007, the powers that be will simply ignore the truth and push the company line that all is well, and that the Fed, ECB, or BOJ have everything under control.
The next financial collapse will come swiftly and suddenly, just as it did on September 16, 2008, exactly one year to the day after the bank run on Northern Rock began, and like the new policies that came out of that crisis such as ‘too big to fail’ and Dodd-Frank, the repercussions of the next crisis will also be a wholesale shift in money, its ownership, and how the depositor themselves will become the protector of an insolvent banking system, when the duly appointed gatekeepers are found incompetent and unable.