Secondary banking crisis of 1973–1975 facts for kids
The secondary banking crisis of 1973–1975 was a big problem for banks in Britain. It happened when property prices suddenly dropped a lot. This made many smaller banks, called "secondary" banks, almost go out of business.
What Happened During the Crisis?
Banks had been lending a lot of money for houses. They borrowed heavily themselves, thinking house prices would keep going up. But then, house prices suddenly fell. Also, interest rates went up before the 1973 oil crisis. This meant the smaller banks had many loans for properties that were now worth less than the money they had lent.
The Bank of England, led by Jasper Hollom, stepped in to help. They worked out deals to save about 30 smaller banks. They also helped another 30 banks. All banks were able to pay back people who had deposited money. However, the Bank of England lost about £100 million. This difficult time got even worse because of a worldwide 1973–74 stock market crash. This crash hit the UK while it was already dealing with falling house prices.
How Britain Recovered
On 19 December 1974, a rule that had frozen how much rent could be charged since 1971 finally ended. The Bank of England, which had made it hard to get loans for houses in 1971, then released more money. House prices and lending started to get better in 1975. However, prices for everyday things kept going up (this is called inflation). This led to more money problems and political issues for Britain.
The Bank of England was given more power to control lenders. This happened with the Banking Act 1979. The goal was to try and stop a similar crisis from happening again in the future.
Why Did the Crisis Happen?
People still discuss why this crisis happened. Some believe it was because banks were not controlled strictly enough. They also blame government policies that caused prices to rise too fast. This period was called the 'Barber Boom', named after Chancellor of the Exchequer Anthony Barber. This plan aimed to lower high unemployment but did not work. The Bank of England was also blamed for suddenly making it harder to borrow money. Interest rates went up to 13% in October 1973.
Others think the government's decision to freeze rent prices in 1971 was a cause. A detailed study by Reid (1982) points to all these reasons. She also blames a "bubble" in house prices. This meant London house prices went up by 50% in 1971 alone. Financial uncertainty also played a part. This included the end of the Bretton Woods agreement and the close results of the February 1974 United Kingdom general election.
This time was also full of other problems. There was political uncertainty with the Heath government. There were many strikes by workers. Oil shortages led to a government rule for a three-day work week. Reid also suggests that the way London banks did business in the late 1960s made these kinds of crashes likely to happen.
See also
- Economic history of Britain. 1960–1979: the Sixties and Seventies
- Political history of the United Kingdom (1945–present)
- Stock market crash of 1973–74
- October 1974 United Kingdom general election
- Harold Wilson
