The Latest Bank Collapse Is A Warning To The Complacent

There was a day in 2008 when I went to visit what was then the UK financial watchdog, the FSA, at its headquarters in Canary Wharf. The topic under discussion was Northern Rock, the mortgage lender that was in crisis.

- Chris Blackhurst

After that, I crossed to the other side of the dock at Canary Wharf, for lunch at Lehman Brothers. Over a silver-service meal that would have done a Michelin inspector proud, my companion expressed their pity for the regulator; how the people working there were not paid enough; how Northern Rock, which was a particularly aggressive extender of credit, was a risky business model.

As the liveried waiters poured the most expensive wines, all seemed well and content in Lehman land. A few weeks later, Lehman went bust, and we were treated to those pictures of employees carrying out their boxes of personal belongings as the world juddered on its axis. The point of me relaying this now is that it was no coincidence. A rise in US interest rates accompanied by defaults on sub-prime loans had caused the wholesale credit market to go into spasm. Northern Rock was caught; but so, then, was Lehman.

This weekend, we've had a rude reminder of those days, with the collapse of Silicon Valley Bank (or SVB) in the US. Suddenly, the word that reared its head back then and was the link between Northern Rock, with its customer base in the northeast of England, and the imperious Wall Street giant, Lehman, was being used again: "contagion".