NORTHERN ROCK PLC

Northern Rock plc

Northern Rock plc

Introduction

The study is related to the basic functions of commercial banks in view of the collapse of the Northern Rock plc. For the commercial bank, it is important and essential to follow and work on the basic functions; however, it is also necessary that the commercial bank should focus on the economic conditions and should work according to the procedures. In the case of Northern Rock plc, it was observed that there was a collapse which basically took place due to mishandling of the basic functions of commercial banks that is mortgage allocation to the customers. Ina addition to this, it is also observed that the liquidity position of the Northern Rock plc was also in danger as due to the collapse, the investors or the depositors were also queuing up to take back their investment.

Discussion

Northern Rock plc

Northern Rock is a savings and mortgage bank engaged in providing banking and financial services to the residential customers. Northern Rock plc offers customer saving accounts, residential mortgage lending services, and insurance services. It is authorized and regulated by the Financial Services Authority (FSA) as a mortgage provider and deposit taker. Northern Rock primarily operates in the United Kingdom, where it is headquartered in Newcastle, and employs around 3,250 people.

The company recorded revenues of £ 104.9 million (approximately $ 162.2 million) in the fiscal year ended December 2010. Its net loss was £ 223.5 million (approximately $ 345.6 million) in fiscal 2010. Northern Rock is engaged as a mortgage provider in the United Kingdom. Through its subsidiaries, Northern Rock plc is engaged in the provision of mortgage indemnity insurance and retail deposit taker. As of Dec. 31, 2009, Northern Rock plc held a residential mortgage book of £ 49,700,000 and a portfolio of personal unsecured loan accounts of £ 3,900,000. Northern Rock plc had a branch office in Ireland and a subsidiary through which it operated in Guernsey.

The functioning of a large number of commercial banks makes it possible to choose the best option for the client. All business, both in principle and any other banks perform several functions. Issuance of credit cards, lending, deposit all of this relates to the functions performed by commercial banks, but the range of functions is large enough and therefore requires more detailed consideration.

Functions of Commercial Banks

The transformation of temporarily free funds in the capital by means of mobilization. Thus, banks accumulate cash savings and funds in the form of deposits; it may not be stocked or stocked deposit, and turn them into loan capital, which is used for lending.

Implementation of non-cash deposit and credit issue, or in other words, the creation of credit money. Lending funds from deposit accounts increases the amount of money in circulation. When the bank creates a loan for a deposit account credited. Banking allows a person to withdraw money credited to the set up for a deposit account at any time, of course, taking into account the time of the bank (Groppelli and ...