How to rescue a bank: be firm, be quick, be quiet

To judge from the media coverage of Northern Rock, one might imagine that the circumstances of a bank collapse have never occurred before — or at least not for 150 years. But this is not the case. There have been several in recent years, including those of Johnson Matthey and Barings. But the closest parallel is one that is less well known: the collapse of National Mortgage Bank (NMB), of which I was appointed chairman in February 1992 to supervise the run-off of its business.

The story begins with the collapse of the fraud-ridden Bank of Credit and Commerce International in 1991. This was not the direct responsibility of the Bank of England, but it had the effect of causing collateral damage to secondary banks in the UK. The largest of those affected was NMB, a wholly-owned subsidiary of a quoted company called National Home Loans. NMB, which was about half the size of BCCI, financed loans to homeowners and small businesses through the wholesale money markets.