Word: cashed
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...that it would guarantee all deposits held with Northern Rock. "I want to put the matter beyond doubt," announced Alistair Darling, the Chancellor of the Exchequer, putting British taxpayers on the hook for billions of dollars of Northern Rock deposits in the (extremely unlikely) event it did default. Users' cash squirreled away at the bank, he said, "will be guaranteed safe and secure...
...perceived as a good growth stock with a good model." Its approach: a limited branch network meant savings chipped in by its own customers amounted to a smaller chunk of the funds it could lend in the form of mortgages. So the company turned instead to other banks for cash. The result: three-quarters of its funds were borrowed from the wholesale credit markets, versus around half at rival mortgage bank Alliance & Leicester and 25% at Bradford & Bingley. "For years," says Wheeldon, "they made the wholesale markets work for them...
...sector built on lending to home buyers with poor credit histories has given global credit markets the jitters. With that risky debt spliced, repackaged and sold around the world, uncertainty over just who was exposed to the debt - and to what extent - meant that rather than lending around their cash, banks have taken to hoarding...
...again on Sept. 19, amid rumors of an imminent takeover bid.) Are other British banks similarly vulnerable? Less so, since they never relied on the credit markets to the degree Northern Rock did. Even so, "we'll see a slow pull back" in their reliance on other banks for cash, reckons BGC Partners' Wheeldon. Looking at the consequences of Northern Rock's over-reliance on a single, unexpectedly risky revenue stream, he says, "they will have learned lessons...
...meantime, just as central banks in the U.S. and euro zone have pumped cheap cash into money markets to boost liquidity in recent weeks, the Bank of England announced plans to inject almost $30 billion into the U.K. system after the credit squeeze nudged up the rates banks were charging each other to borrow. The longer those rates remain high, the more mortgage providers will be forced to pass on the costs to homeowners, increasing the chances of a consumer spending slowdown and a weakening economy. That prospect - and the dramatic half percentage point...