Retail banks and building societies Flashcards
Originate and distribute model
Banks make loans, but instead of keeping these loans they bundle them into pools of assets and sell them to outside investors
ATM
Automatic teller machine - where a teller is an employee of a bank that deals directly with customers
Gilts
Highly reliable investments issued by the government
Wholesale market
Another term for the money market, so called because of the large amounts which are lent and borrowed
Summary of Northern Rock events
Aggressive use of originate and distribute model. Make mortgage loans and sell them in the market; receive higher rate from homeowners than you pay in the market for the money -> profit. Sub-prime lending leads to vulnerability to falling house prices, investor confidence causes share prices to fall. Money markets no longer open to financing NR - no emergency funding - runs out of money - run on the bank - Alastair Darling has to guarantee all deposits in any bank.