The collapse of Lehman’s effectively signified the transition of when the credit crunch became the financial crisis and the turmoil that ensued rocked the entire world.
It’s quite incredible what’s happened over the past 12 months, not only from a business perspective but also because of the impact it’s had on consumers.
Here’s a look back at the main events.
“This was the week that the financial crisis really took a new dimension, the collapse of Lehman Brothers has had a tumultuous effect on the global stock markets.”
“I think the first thing it does is add a great deal of uncertainty on top of what we already had.”
“…and it’s another example of where there is failing and reduced confidence across the market and across consumers
“It’s been quite an incredible week hasn’t it! You and I have both done a lot of media work on the way that savers are reacting to all this turmoil.”
“…are the latest measures we’ve seen from governments here in the UK and from around the world enough to shore up confidence?”
“For new borrowers I think they wont see any benefit from this big half a percent rate reduction.”
“Despite the half point cut in interest rates we saw earlier this month, there’s been little in the way of good news for those needing a mortgage.”
“After a weekend of crisis meetings between government leaders, financial heads and economic advisers in a bid to stave off a financial meltdown, we’ve seen two more UK banks nationalised today – Royal Bank of Scotland and Halifax Bank of Scotland.”
“There has been little in the way of good news on the economic front this year and the chancellor Alistair Darling, has conceded that the recession is likely to last longer then he and the Government anticipated.”
I asked Kevin Mountford, head of banking here at moneysupermarket.com, for his views on the events of the past year.
Q1: So, what’s the thing that stands out most for you following the events of the last twelve months?
Kevin Mountford: Well I guess the main thing clearly is that savings has come to the forefront of everybody’s minds: the consumer and also the banks and the building societies. I guess the days now of banks relying on wholesale funding - basically the money they exchange between themselves – has long gone and there’s going to be a great deal of focus on that particular area.
But I think for the first time the most significant thing was that people suddenly were concerned that their cash savings could disappear, and then the likes of the Financial Services Compensation Scheme (FSCS) suddenly became of interest and people understood there was £35,000, then a £50,000 limit, so that was a big thing for me last year.
And then with the collapse in the Icelandic banks we had the savings crisis, and it was just a massive clamber by consumers to try and get their money – queues outside branches, websites crashing, call centres inundated and unable to answer – and it was just a crazy, crazy several months at the back end of last year.
Q2: But with Bank base rate haven fallen to half a percent, we’ve now seen a shift, haven’t we, with a lot of savers now seeking the best returns again rather than safety?
KM: I mean, with the fact that the compensation scheme paid out I think it’s given people a degree of comfort now. As you rightly say, the return that you get on the savings becomes critical, and we’ve always seen that base rate changes - up or down - is a catalyst from which people then start to search and look for options.
So in a flat base rate environment, particularly one that’s as low as 0.5%, it makes it very, very difficult to keep an interest at a consumer level. But there lies the challenge for the industry, if it clearly needs to keep people investing money.
Q3: And what do you expect to happen over the next twelve months? Are we in a calmer period?
KM: You would expect so, under normal circumstances, but since base rate dropped to 0.5% earlier this year we’ve still seen volatility in the marketplace. I think what’s happening now is the banks and building societies are being a little bit more creative in terms of product design, so for instance we saw Isa’s - as you expect - coming strong at the start of the year but the Isa season carried on for longer than we normally would have anticipated.
And then because of the market rates, fixed rate bonds were very, very strong and we’ve seen products over 5%. That started to slow down, and the focus has now turned back to easy access, and if you think about it - although relative to last year rates are quite low - rates of over 3% compared to inflation and base rate is actually showing a good return on your investment, so people shouldn’t be complacent.
I expect that the need for the bank to draw in our money will mean that they’re going to have to continue to be creative for the rest of this year and the rest of 2010.
Clare Francis: While we’re still a long way from what many people would describe as ‘normal times’, many analysts do believe we’re past the worst, so hopefully as far as our financial security is concerned the next 12 months will be less eventful than the last.