Alistair Darling/Addendum

The impact of the financial crisis

When Alistair Darling took office as Chancellor of the Exchequer in June 2007, the international financial system had just entered the first stage of the financial crisis. A sharp and unexpected fall in United States house prices had created the subprime mortgage crisis by causing large falls in the prices of internationally-held securities whose value depended upon mortgages secured on those houses. British banks were known to be affected, and it was realised that their losses could be expected to have an adverse effect on other sectors of the economy. The crisis entered its second stage in August 2007, when the French BNP Paribas bank announced that it could not determine the value of those of its bonds that were backed by US house mortgages. A mood of uncertainty developed in which every financial institution experienced doubts, not only about its own holdings, but also upon the securlties held by its trading partners. That uncertainty deprived some banks of their accustomed sources of loans, and placed some of them in danger of insolvency. (One such was Northern Rock)