- Secondary Banking Crisis of 1973-75
The Secondary Banking Crisis of 1973-75 was a dramatic crash in property prices in
Great Britainwhich caused dozens of small ("secondary") lending banks to be threatened with bankruptcy.
These secondary banks, like the larger institutions, had been borrowing heavily against housing prices in the late 1960s and early 1970s, seen as the last hurrah of the British Post-War boom. A sudden downturn in housing market prices coupled with hikes in interest rates and the jump in Oil prices caused by the 1973
Yom Kippur warleft these smaller institutions devoid of capital. The Bank of Englandbailed out around thirty of these smaller banks, and intervened to assist some thirty others. While none of these banks were left unable to pay depositors, the Bank of England lost an estimated £100 million. [Margret Reid (1982)] The downturn was exacerbated by the global Stock market crash of 1973–4, which hit England already in the midst of the housing price crash.
19 December 1974, a 1971 rent freeze by the Heath government was rescinded, and the Bank of England, which had severely restricted the supply of credit for housing in 1971 release greater funds. cite news |first=Grant |last=Ringshaw |title=Why we should fear a nasty 70s revival |url=http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2003/02/02/ccstox02.xml |publisher= Daily Telegraph|date=1 February 2003 |accessdate=2007-09-11 ] [Glyn Davies. A History of Money from Ancient Times to the Present Day, rev. ed. Cardiff: University of Wales Press, 1996. ISBN 0 708313515 pp. 406-407,414,419-423, 424-425] The Bank of England's regulatory powers over lenders were increased in the 1979 Banking Actto prevent a repeat of the crisis. Despite the recovery of Housing prices and lending in 1975, inflation continued to rise, leading to greater economic, labour, and political problems for Britain.
The causes of the Banking Crisis remain a source of debate. Some blame the lax regulation of lenders, and policy driven inflationary pressures (the so called "Barber Boom", after
Chancellor of the Exchequer Anthony Barber) which failed to even correct its initial target: high unemployment rates. A sudden tightening of credit (interest rates were raised to 13% in October 1973), is laid at the feet of the Bank of England. [ [http://www.guardian.co.uk/business/2007/sep/14/money.northernrock3 Led Zeppelin, soaring oil and house prices: is it 1973 all over again?] Larry Elliott, economics editor, guardian.co.uk, Friday September 14 2007.
Andrew Sheng. Role of the Central Bank in Banking Crisis: An Overview. in Patrick Downes, Reza Vaez-Zadeh, International Monetary Fund Central Banking Dept, (eds.) The Evolving Role of Central Banks: Papers Presented at the Fifth Seminar on Central Banking, Washington, D.C., November 5-15, 1990. International Monetary Fund, (1991) ISBN 9781557751850
"The English secondary banking crisis of 1973-75 was mainly the result of overborrowing on the part of real estate and securities firms and by the collapse of property and share prices following tight monetary policy in the wake of the 1973 oil crisis." p. 204] . Others blame the Heath government's fixing of rent price rises in 1971. The only book length study of the crisis by Reid (1982) blames all these factors, a bubble of housing prices that saw a 50% increase in London real estate prices over 1971 and the financial uncertainty caused by the end of the
Bretton Woods agreementand the inconclusive general elections of February 28, 1974. As well, the political uncertainty of the Heath government, strikes, and oil shortages leading to a three day work week. But Reid also blames the entire market culture of the London banking institutions from the late 1960s, which made market speculation (and pursuant crashes) inevitable. [Margret Reid. The Secondary Banking Crisis, 1973-75: Its Causes and Course. Macmillan, London (1982)/ 2nd ed, Hindsight, London (2003) ISBN 9780954156725]
History of the United Kingdom (1945–present)
Stock market crash of 1973–4
United Kingdom general election, October 1974
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