People are more disillusioned with the banking sector than ever before, a consumer group has claimed, five years after the credit crunch got underway.
August 9 2007 was dubbed as “the day the world changed” by the former chief executive of Northern Rock, Adam Applegarth.
Now almost three-quarters (71%) of members of the public surveyed by Which? do not believe the banks have learnt their lesson from the financial woes, higher than the 61% polled in September last year.
The public has little faith in the parliamentary inquiry into ethics in the banking sector, with little over a quarter (26%) confident that it will result in a positive change from the country’s lenders.
The survey was published some five years after the final wake-up call to the world’s banking system took place after a number of warnings over the toxic nature of high-risk mortgage debt. People were about to hear a lot about sub-prime mortgages.
BNP Paribas, the biggest bank in France, had to suspend three of its funds with major exposure to the bonds backed by US sub-prime mortgages. BNP was unable to value them due to the market for these products drying up completely.
The US Federal Reserve raised interest rates to 5.25% as default levels among high-risk US borrowers soared.
Most banks used the bonds as collateral for the commercial paper they used as a source of short-term funding, but confidence in them was now in bits.
The economy has been hit by two recessions since then and consumers have witnessed a number of bank scandals unfold, which have cast the spotlight on mismanagement in UK banking.
“Five years on from the beginning of the financial crisis, public confidence in the banking industry is at an all time low, with a series of scandals exposing mis-management and corruption at the very heart of the banking system that have cost UK consumers dear,” said Which? chief executive Peter Vicary-Smith.
Since the credit crunch hit, inter-bank lending rates went up while the mortgage securities market has closed, placing intolerable pressure on the finances of Northern Rock.
The Rock’s method of financing itself was “a reckless business model excessively reliant on wholesale funding”, MPs said, which had been caught out by the credit crunch.
The UK’s first run on a bank in 140 years took place as panicking customers queued to reclaim their savings.
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