Letters | 3 May 2008

Call that a crisis?

Sir: Ian Hay Davison (‘How to rescue a bank’, 19 April) is right that the Northern Rock episode was far from unprecedented. But there is much more to say. The difficulties of a number of relatively minor institutions in the early 1990s, including National Mortgage Bank (to which he refers), were small beer compared with the crisis of the mid-1970s.

The classic account was given by Margaret Reid in her 1982 book, The Secondary Banking Crisis, 1973–75. Using banking industry sources, she suggests that the total amount of finance exceptionally provided to support banks in trouble was three billion pounds. In the end all the loans were repaid and all depositors got their money back. However, the Bank of England did have to cover the losses of some of the more delinquent institutions. Reid’s estimate, based on the Bank’s own annual reports, is that these losses totalled £100 million.