Timeline: Global credit
A year ago, few people had heard of the term credit
crunch, but the phrase has now entered
Defined as "a severe shortage of money or credit", the
start of the phenomenon has been pinpointed as 9 August
2007 when bad news from French bank BNP Paribas triggered
sharp rise in the cost of credit, and made the financial
world realise how serious the situation was.
The problems, however, started much earlier.
GROWING SUB-PRIME PROBLEMS
After a two year period between 2004 and 2006 when US
interest rates rose from 1% to 5.35%, the US housing market
begins to suffer, with prices falling and a rise in
homeowners defaulting on their mortgages.
Default rates on sub-prime loans - high risk loans to
clients with poor or no credit histories - rise to record
APRIL-AUGUST 2007: SUB-PRIME CONTAGION
New Century Financial, which specialises in sub-prime
for Chapter 11 bankruptcy protection and cuts half of
As it sold on many of its debts to other banks, the
collapse in the sub-prime market begins to have an impact
at banks around the world.
Investment bank Bear Stearns tells investors they will
get little, if any, of the money invested in two of its
hedge funds after rival banks refuse to help it bail them
Federal Reserve chairman Ben Bernanke follows the news
warning that the US sub-prime crisis could cost up to
AUGUST 2007: SCALE OF THE CREDIT CRISIS EMERGES
9 August 2007
Investment bank BNP Paribas tells investors they will
not be able to take money out of two of its funds because
it cannot value the assets in them, owing to a "complete
evaporation of liquidity" in the market.
It is the clearest sign yet that banks are refusing to
do business with each other.
The European Central Bank
95bn euros (£63bn) into the banking market to try to
improve liquidity. It adds a
further 108.7bn euros over the next few days.
The US Federal Reserve, the Bank of Canada and the Bank
of Japan also begin to intervene.
Fed cuts the rate at which it lends to banks
by half of a percentage point to
5.75%, warning the credit crunch could be a risk to
UK sub-prime lenders begin to withdraw mortgages or put
up the cost of borrowing for UK homeowners with poor credit
German regional bank Sachsen Landesbank faces collapse
after investing in the sub-prime market;
sold to larger rival Landesbank Baden-Wuerttemberg.
SEPTEMBER 2007: A RUN ON A BANK
German corporate lender IKB
a $1bn loss on investments linked to the US sub-prime
The rate at which banks lend to each other rises to its
highest level since December 1998.
The so-called Libor
rate is 6.7975%, way above the Bank of England's 5.75%
base rate;banks either worry
whether other banks will survive, or urgently need the
The BBC reveals Northern Rock has asked for and
granted emergency financial support from the Bank of
England,in the latter's role
as lender of last resort.
Northern Rock relied heavily on the markets, rather than
savers' deposits, to fund its mortgage lending. The onset
of the credit crunch has dried up its funding.
A day later depositors withdraw £1bn in what is
biggest run on a British bank for more than a
century. They continue to
take out their money until the government steps in to
guarantee their savings.
The US Federal Reserve
its main interest rate by half a percentage point to
After previously refusing to inject any funding into the
Bank of England announces that it will auction
OCTOBER 2007: MAJOR LOSSES BEGIN TO EMERGE
Swiss bank UBS is the world's first top-flight bank to
losses - $3.4bn - from sub-prime related
The chairman and chief executive of the bank step down.
Later, banking giant Citigroup unveils a sub-prime related
loss of $3.1bn. A fortnight on Citigroup is forced to write
down a further $5.9bn. Within six months, its stated losses
amount to $40bn.
Merrill Lynch's chief
after the investment bank unveils a $7.9bn exposure to
NOVEMBER 2007: UK HOUSING MARKET 'TURNS DOWN'
The Bank of England reveals
the number of mortgage approvals has fallen to a near
The Council for Mortgage Lenders (CML)
the starkest warning yet of the impact of the credit
crunch on the mortgage
market,saying that without
more funding available on financial markets, mortgage
lenders will not be able to offer as many mortgages.
DECEMBER 2007: HELP IS AT HAND
US President George W Bush
plans to help more than a million homeowners facing
The Bank of England cuts interest rates by a quarter of
one percentage point to 5.5%.
The US Federal Reserve
an unprecedented action by five leading central banks
around the world to offer billions of dollars in loans
The Bank of England calls it an attempt to "forestall
any prospective sharp tightening of credit conditions". The
move succeeds in temporarily lowering the rate at which
banks lend to each other.
The central banks continue to make more funding
is a $20bn auction from the US Federal Reserve
and, the following day, $500bn
from the European Central Bank to help commercial banks
over the Christmas period.
NEXT UP: THE BOND INSURERS
Ratings agency Standard and Poor's downgrades its
investment rating of a number of so-called monoline
insurers, which specialise in insuring bonds. They
guarantee to repay the loans if the issuer goes bust.
There is concern that insurers will not be able to pay
out, forcing banks to announce another big round of
9 January 2008
The World Bank predicts
that global economic growth will slow in 2008,
as the credit crunch hits the
A rush to withdraw money from its commercial property
Scottish Equitable to introduce delays of up to 12
months for investors wanting
to take their money out.
It blames the rush of withdrawals on concerns about the
US sub-prime mortgage collapse, recession worries and
Global stock markets, including London's FTSE 100 index,
their biggest falls since 11 September 2001.
The US Fed cuts
rates by three quarters of a percentage point to
3.5% - its biggest cut in 25
years - to try and prevent the economy from slumping
It is the first emergency cut in rates since 2001. Stock
markets around the world recover the previous day's heavy
A major bond insurer MBIA,
a loss of $2.3bn - its biggest to date for a three-month
period -blaming its exposure
to the US sub-prime mortgage crisis.
FEBRUARY - MARCH 2008: BIG NAME CASUALTIES
US Federal Reserve boss
Bernanke adds his voice to concerns about monoline
insurers, saying he is
closely monitoring developments "given the adverse
effects that problems of financial guarantors can have
on financial markets and the economy".
The Bank of England cuts interest rates by a quarter of
one percent to 5.25%.
In the UK, the latest
figures show the number of homes repossessed in the UK
rose to 27,100 in 2007, its
highest level since 1999.
Leaders from the G7 group of industrialised nations say
worldwide losses stemming from the collapse of the US
sub-prime mortgage market could reach $400bn.
After considering a number of private sector rescue
proposals, including from Richard Branson's Virgin Group,
government announces that struggling Northern Rock is to
be nationalised for a temporary period.
In its biggest intervention yet,
Federal Reserve makes $200bn of funds available to banks
and other institutions to
try to improve liquidity in the markets.
Wall Street's fifth-largest bank,
Stearns, is acquired by larger rival JP Morgan Chase for
$240m in a deal backed by
$30bn of central bank loans.
A year earlier, Bear Stearns had been worth £18bn.
UK house prices will fall by the end of the year,
revising its previous forecast
of no change in prices.
APRIL 2008: THE 100% MORTGAGE IS CONSIGNED TO
Moneyfacts, which monitors financial products,
20% of mortgage products have been withdrawn from the UK
market in the previous seven
Five days later the 100% mortgage disappears when
withdraws the last home loan available without a
The International Monetary Fund (IMF), which oversees
the global economy, warns
that potential losses from the credit crunch could reach
$1 trillion and may be even higher.
It says the effects are spreading from sub-prime
mortgage assets to other sectors, such as commercial
property, consumer credit, and company debt.
The Bank of England cuts interest rates by a quarter of
one percent to 5%.
A warning is issued by the CML that the amount of
funding available for mortgages in the UK could be cut in
half this year.
calls on the Bank of England to kick-start the money
markets and ease the effects of the credit crunch.
Confidence in the UK housing market
to its lowest point in 30 years in March,
according to the Royal
Institution of Chartered Surveyors, because of the
"unique liquidity blight".
But it does add that the situation is good news for
buyers with large deposits who can buy property that was
previously out of reach.
The Bank of England announces details of an
£50bn plan designed to help credit-squeezed banks
by allowing them to swap
potentially risky mortgage debts for secure government
APRIL - JUNE 2008: BANKS PASS ROUND THE HAT
Royal Bank of Scotland
a plan to raise money from its shareholders
with a £12bn rights issue - the
biggest in UK corporate history.
The firm also announces a write-down of £5.9bn on the
value of its investments between April and June - the
largest write-off yet for a British bank.
Persimmon becomes the
first UK house builder to announce major cutbacks,
citing the lack of affordable
mortgages and a fall in consumer confidence.
It adds sales have fallen by a quarter since the
beginning of the year.
The CML says the
number of new mortgages approved in March slipped 44% to
64, the lowest monthly
number since records began in 1999.
The first annual
fall in house prices for 12 years
is recorded by Nationwide.
Prices were 1% lower in April compared to a year earlier
after a "steep decline" in home buying over the previous
Later in the week, figures from the UK's biggest lender
Halifax, show a 0.9% annual fall for April.
More than 850
companies went into administration between January and
March, government figures
show, a rise of 54% on the previous year. Retail and
construction firms are hardest hit.
Swiss bank UBS, one of the worst affected by the credit
a $15.5bn rights issueto
cover some of the $37bn it lost on assets linked to US
There are significant developments in two major credit
crunch-related investigations in the US, which it is hoped
will restore confidence in the credit markets.
The FBI arrests
406 people, including brokers and housing
developers, as part of a
crackdown on alleged mortgage frauds worth $1bn.
former Bear Stearns workers face criminal charges
related to the collapse of two hedge funds
linked to sub-prime
It is alleged they knew of the funds' problems but did
not disclose them to investors, who lost a total of
plans to raise £4.5bn in a share issue
to bolster its balance
The Qatar Investment Authority, the state-owned
investment arm of the Gulf state, will invest £1.7bn in the
British bank, giving it a 7.7% share in the business. A
number of other foreign investors increase their existing
JULY 2008: MAJOR LENDERS ON THE EDGE
The gloomy findings of a survey of its members
the British Chambers of Commerce (BCC) to suggest that
the UK is facing a serious risk of recession
Meanwhile, the FTSE 100 stock index briefly dips into a
"bear market", in which the market suffers a 20% fall from
its recent highs.
mortgage lender IndyMac collapses
- the second-biggest bank in US
history to fail.
in to assist America's two largest lenders, Fannie Mae
and Freddie Mac. As owners
or guarantors of $5 trillion worth of home loans, they
are crucial to the US housing market and authorities
agree they could not be allowed to fail.
The previous week, there had been a panic amongst
investors that they might collapse, causing their share
prices to plummet.
Just 8% of
HBOS investors agree to take up the new shares offered
in its £4bn rights issue,
because they are priced higher
than existing shares are trading on the stock
But HBOS still gets the £4bn it wanted, as the unsold
new shares are bought by the issue's underwriters.
UK house prices show
their biggest annual fall since the Nationwide began its
housing survey in 1991, a
decline of 8.1%.
The average home now costs £169,316. That is nearly
£15,000 cheaper than in the same month last year.
Meanwhile, HBOS reveals that profits for the first half
of the year sank 72% to £848m, while bad debts rose 36% to
£1.31bn as customers failed to repay loans.
AUGUST - SEPTEMBER 2008: GIANTS SUFFER
Global banking giant HSBC
that conditions in financial markets are at their
toughest "for several decades"
after suffering a 28% fall in
Of Europe's top banks, HSBC has among the heaviest
exposure to the troubled US housing and credit markets.
The bad news continues with revised figures from the ONS
revealing that the UK economy is a standstill.
Nationwide reveals that UK house prices have fallen by
10.5% in a year.
A day later Bradford
and Bingley posts losses of £26.7m for the first half of
2008, blaming surging
mortgage arrears for a rise in impairment.
Looking ahead, it warned it expected arrears to remain
at high levels for the rest of the year.
Chancellor Alistair Darling
that the economy is facing its worst crisis for 60
yearsin an interview with
the Guardian newspaper, saying the current downturn
would be more "profound and long-lasting" than most had
Official figures from the Bank of England show a slump
in approved mortgages for July.
Meanwhile, while the
pound falls to record lows of 81.21 pence against the
euroand two-year lows of
In an effort to kick-start the UK housing market
Treasury announces a one year rise in stamp duty
exemption,from £125,000 to
But there is more bad news, as the Organisation for
Economic Cooperation and Development forecasts that the UK
will be in a full blown recession by the end of the next
two quarters. A day later the European central bank cuts
growth forecast 2009 to 1.2% from 1.5%.
The Bank of England leaves rates on hold at 5% while the
latest figures from the Halifax show that house prices in
England and Wales continue to fall.
A raft of negative news from around the world
the FTSE notch up its steepest weekly decline since July
The US labour market figures - which showed the
unemployment rate rising to 6.1% - were a further jolt to
investors who have had to swallow a slew of poor economic
data in recent days.
The Halifax warns
that the impact of the credit crunch will be felt well
into 2010.Chief executive
Andy Hornby explains that British banks will continue to
suffer major problems in offering loans until they can
raise significant sums on wholesale markets, something
that will not be possible until US house prices
Mortgage lenders Fannie Mae and Freddie Mac - which
account for nearly half of the outstanding mortgages in the
US - are
rescued by the US government in one of the largest
bailouts in US history.
Treasury Secretary Henry Paulson says the two firms'
debt levels posed a "systemic risk" to financial stability
and that, without action, the situation would get
At the same time, in the UK, the Nationwide announces it
will merge with two smaller rivals, the Derbyshire and
Cheshire Building Societies.
More bad news emerges for the UK economy as the ONS
reveals manufacturing output fell by 0.2% between June and
July, raising a real fear of recession.
Meanwhile, the British Retail Consortium reports UK
retail sales values fell by 1.0% on a like-for-like basis
from August 2007.
On the housing front, there were more negative headlines
with the Royal Institute of Chartered Surveyors
figures showing house sales were at their lowest level
for 30 years,while the CML
reported that the number of first-time buyers has hit
its lowest level since its survey began in January
Wall Street bank Lehman Brothers posts a loss of $3.9bn
for the three months to August.
The announcement comes against a background of further
dire economic warnings from the European Commission, which
that the UK, Germany and Spain will go into recession by
the end of the year.
After days of searching frantically for a buyer,
Brothers files for Chapter 11 bankruptcy protection,
becoming the first major bank to
collapse since the start of the credit crisis.
Former Federal Reserve chief Alan Greenspan dubs failure
as "probably a once in a century type of event" and warns
that other major firms will also go bust.
Meanwhile fellow US bank
Lynch, also stung by the credit crunch, agreed to be
taken over by Bank of
Americafor $50bn, the latest
twist in a dramatic turn of events on Wall Street.
The US Federal Reserve
an $85bn rescue package for AIG, the country's biggest
insurance company,to save it
from bankruptcy. AIG gets the loan in return for an 80%
public stake in the firm.
Britain's biggest mortgage lender
is taken over by Lloyds TSB in a £12bn deal
creating a banking giant holding
close to one-third of the UK's savings and mortgage
market. The deal follows a run on HBOS shares.
In the largest bank failure yet in the United States,
Washington Mutual, the giant mortgage lender which had
assets valued at $307bn
down by regulators and sold to its JPMorgan Chase.
Analysts say much of its problems have been caused by
the group's 2006 purchase of mortgage lender Golden West
for $25bn at the height of the then US housing boom.
The credit crunch hits Europe's banking sector as the
European banking and insurance
giant Fortis is partly nationalised to ensure its
survival.It is seen as too
big a European bank to be allowed to go under.
Authorities in the Netherlands, Belgium and Luxembourg
agree to pour in 11.2bn euros ($16.1bn; £8.9bn). Fortis'
share price has fallen sharply amid concerns about its
In the US lawmakers announce they have reached a
bipartisan agreement on a rescue plan for the American
The package, to be approved by Congress, allows the
Treasury to spend up to $700bn buying bad debts from ailing
It will be the biggest intervention in the markets since
the Great Depression of the 1930s.
In Britain the mortgage
lender Bradford & Bingley is nationalised.
The British government takes
control of the bank's £50bn mortgages and loans, while
its savings operations and branches are sold to Spain's
The Icelandic government takes control of the country's
third-largest bank Glitnir after the company had faced
short-term funding problems.
Wachovia, the fourth-largest US bank, is bought by its
larger rival Citigroup in a rescue deal backed by the US
authorities. Under the deal, Citigroup will absorb up to
$42bn of Wachovia losses.
The US House of Representatives rejects a $700bn rescue
plan for the US financial system - sending shockwaves
around the world.
It opens up new uncertainties about how banks will deal
with their exposure to toxic loans and how credit markets
can begin to operate more normally. Wall Street shares
plunge, with the Dow Jones index slumping 7% or 770 points,
a record one-day point fall.
becomes the latest European bank to be bailed out
as the deepening credit crisis
continues to shake the banking sector.
After all-night talks the Belgian, French and Luxembourg
governments said they would put in 6.4bn euros ($9bn; £5bn)
to keep it afloat.
Irish government says it will guarantee all deposits in
the country's main banks for two years
In the UK, Prime Minister Gordon Brown says the
government is planning to raise the limit on guaranteed
bank deposits from £35,000 to £50,000.
markets stabilise ahead of a vote in the Senate,
which eventually approves an
amended $700bn financial rescue bill.
Market confidence that Lloyds TSB's takeover of HBOS
will not be derailed by stock market volatility sees HBOS
shares rise 20%.
A report says that French Finance Finister Christine
Lagarde calls for an emergency EU bail-out fund for banks
threatened with failure.
The EU says it is looking at whether Ireland's full
guarantee of saving deposits is anti-competitive.
The US House of Representatives
a $700bn (£394bn) government plan to rescue the US
The 263-171 vote was the second in a week, following its
shock rejection of an earlier version on Monday.
The UK's City watchdog, the Financial Services Authority
the limit of the amount of deposits that are guaranteed
should a bank go bust to £50,000.
Germany announces a 50bn
euro ($68bn; £38.7bn) plan to save one of the country's
The deal to save Hypo Real Estate, reached with private
banks, is worth 15bn euros more than the first rescue
attempt, which fell apart a day earlier.
World stock markets react
badly to the ongoing
government says it will not pass new legislation to
provide extra protection for savers.
Chancellor Angela Merkel's had earlier said that no
German savers would lose any money. But it emerges that
this was a was a political pledge, rather than one which
would see it change laws on banking deposits.
However Denmark had already responded by giving a 100%
guarantee on savings, while Sweden increased its protection
announces part of a plan to hammer out a financial
package to shore up its troubled banking sector.
The country's largest banks
agree to sell off some of their foreign assets and bring