Secondary banking crisis of 1973–1975

The secondary banking crisis of 1973–1975 was a dramatic crash in British property prices that caused dozens of small ("secondary") lending banks to be threatened with bankruptcy.

Crisis

The secondary banks, like the larger institutions, had been lending heavily based on the previously rising housing prices of the late 1960s and early 1970s, borrowing excessively in relation to the collateral assets. A sudden downturn in house prices and increases in interest rates well before the November 1973 oil crisis left the smaller institutions holding many loans secured by property with lower value than the loans. The Bank of England, led by Jasper Hollom,^[1] conducted negotiations resulting in bail-outs of around 30 of the smaller banks and intervened to assist some 30 others. While all of the banks were left able to pay depositors, the Bank of England lost an estimated £100 million.^[2] The downturn was exacerbated by the global 1973–74 stock market crash, which hit the UK while it was already in the midst of the housing price crash.

Recovery

On 19 December 1974, a rent freeze by the Edward Heath government which had lasted since 1971 was ended, and the Bank of England, which had severely restricted the supply of credit for housing in 1971, released more funds.^[3]^[4] While housing prices and lending recovered in 1975, inflation continued to rise, leading to greater economic, labour and political problems for Britain.

The Bank of England's regulatory powers over lenders were increased in the Banking Act 1979 to try to prevent a repeat of the crisis.

Causes

The causes remain a source of debate. Some blame the lax regulation of lenders and policy-driven inflationary pressures (the 'Barber Boom', named after Chancellor of the Exchequer Anthony Barber), which failed in its target of lowering the high unemployment rate. A sudden tightening of credit (interest rates were raised to 13% in October 1973) was laid at the feet of the Bank of England.^[5]

Others blame the Heath government's fixing of rent price rises in 1971.^[3] The only book-length study of the crisis by Reid (1982) blames all those factors but also 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 agreement and the inconclusive elections of February 1974. The period was also marked by a series of crises, including the political uncertainty of the Heath government, waves of public sector and industrial strikes and oil shortages that led to a government-mandated three-day work week. However, Reid also blames the entire market culture of the London banking institutions from the late 1960s, which she considers made market speculation (and consequent crashes) inevitable.^[2]

References

^ "Sir Jasper Hollom", The Times, 17 September 2014, p. 54.
^ ^a ^b Margret Reid. The Secondary Banking Crisis, 1973–75: Its Causes and Course. Macmillan, London (1982)/ 2nd ed, Hindsight, London (2003) ISBN 978-0-9541567-2-5
^ ^a ^b Ringshaw, Grant (1 February 2003). "Why we should fear a nasty 70s revival". The Daily Telegraph. Retrieved 11 September 2007.^{[dead link]}
^ Glyn Davies. A History of Money from Ancient Times to the Present Day, rev. ed. Cardiff: University of Wales Press, 1996. ISBN 0-7083-1351-5 pp. 406–407, 414, 419–425
^ Led Zeppelin, soaring oil and house prices: is it 1973 all over again? Larry Elliott, The Guardian 14 September 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., 5–15 November 1990. International Monetary Fund, (1991) ISBN 978-1-55775-185-0
"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

v t e Financial crises
Bank run Commodity price shocks Credit crunch Credit cycle Currency crisis Debt crisis Energy crisis Financial contagion Social contagion Flash crash Hyperinflation Liquidity crisis Accounting Capital Funding Market Minsky moment Social crisis Stock market crash
Pre-1000	Financial crisis of 33 CE Crisis of the Third Century (235–284 CE)
Commercial revolution (1000–1760)	Great Bullion Famine (c. 1400–c. 1500) The Great Debasement (1544–1551) Dutch Republic stock market crashes (c. 1600–1760) Kipper und Wipper (1621–1623) Tulip mania crash (1637) South Sea bubble crash (1720) Mississippi bubble crash (1720)
1st Industrial Revolution (1760–1840)	Amsterdam banking crisis of 1763 Bengal bubble crash (1769–1784) British credit crisis of 1772–1773 Dutch Republic financial collapse (c. 1780–1795) Copper Panic of 1789 Panic of 1792 Panic of 1796–1797 Danish state bankruptcy of 1813 Post-Napoleonic Irish grain price and land use shocks (1815–1816) Panic of 1819 Panic of 1825 Panic of 1837
1840–1870	European potato failure (1845–1856) Great Irish Famine Highland Potato Famine Panic of 1847 Panic of 1857 Panic of 1866 Black Friday (1869)
2nd Industrial Revolution (1870–1914)	Panic of 1873 Paris Bourse crash of 1882 Panic of 1884 Arendal crash (1886) Baring crisis (1890) Encilhamento (1890–1893) Panic of 1893 Australian banking crisis of 1893 Black Monday (1894) Panic of 1896 Panic of 1901 Panic of 1907 Shanghai rubber stock market crisis (1910) Panic of 1910–11 Financial crisis of 1914
Interwar period (1918–1939)	Early Soviet hyperinflation (1917–1924) Weimar Republic hyperinflation (1921–1923) Shōwa financial crisis (1927) Wall Street Crash of 1929 Panic of 1930
Wartime period (1939–1945)	Greek hyperinflation (1941–1946)
Post–WWII expansion (1945–1973)	Hungarian pengő hyperinflation (1945–1946) Kennedy Slide of 1962 1963–1965 Indonesian hyperinflation
Great Inflation (1973–1982)	1970s energy crisis (1973–1980) 1973 oil crisis 1973–1974 stock market crash Secondary banking crisis of 1973–1975 Steel crisis (1973–1982) Latin American debt crisis (1975–1982) 1976 British currency crisis 1979 oil crisis Brazilian hyperinflation (1980–1982)
Great Moderation/ Great Regression (1982–2007)	Brazilian hyperinflation (1982–1994) Souk Al-Manakh stock market crash (1982) Chilean crisis of 1982 1983 Israel bank stock crisis Black Saturday (1983) Savings and loan crisis (1986–1995) Cameroonian economic crisis (1987–2000s) Black Monday (1987) 1988–1992 Norwegian banking crisis Japanese asset price bubble crash (1990–1992) Rhode Island banking crisis (1990–1992) 1991 Indian economic crisis 1990s Swedish financial crisis 1990s Finnish banking crisis 1990s Armenian energy crisis Cuban Special Period (1991–2000) Black Wednesday (1992 Sterling crisis) Yugoslav hyperinflation (1992–1994) 1994 bond market crisis Venezuelan banking crisis of 1994 Mexican peso crisis (1994–1996) 1997 Asian financial crisis October 1997 mini-crash 1998 Russian financial crisis 1998–1999 Ecuador economic crisis 1998–2002 Argentine great depression Samba effect (1999) Dot-com bubble crash (2000–2004) 9/11 stock market crash (2001) 2001 Turkish economic crisis South American economic crisis of 2002 Stock market downturn of 2002 2002 Uruguay banking crisis 2003 Myanmar banking crisis 2000s energy crisis (2003–2008) 2004 Argentine energy crisis 2007 Chinese stock bubble crash Zimbabwean hyperinflation (2007–present)
Great Recession (2007–2009)	2007–2008 financial crisis September 2008 October 2008 November 2008 December 2008 2009 Subprime mortgage crisis 2000s U.S. housing market correction U.S. bear market of 2007–2009 2008 Latvian financial crisis 2008–2009 Belgian financial crisis 2008–2009 Russian financial crisis 2008–2009 Ukrainian financial crisis 2008–2011 Icelandic financial crisis 2008–2011 Irish banking crisis 2008–2014 Spanish financial crisis Blue Monday Crash 2009 European debt crisis Greek government-debt crisis
Information Age (2009–present)	2009 Dubai debt standstill Venezuelan banking crisis of 2009–2010 2010–2014 Portuguese financial crisis Energy crisis in Venezuela (2010–present) Syrian economic crisis (2011–present) August 2011 stock markets fall 2011 Bangladesh share market scam 2012–2013 Cypriot financial crisis 2013 Chinese banking liquidity crisis Venezuela economic crisis (2013–present) 2014–2016 Brazilian economic crisis Puerto Rican government-debt crisis (2014–2022) Russian financial crisis (2014–2016) 2015 Nepal blockade 2015–2016 Chinese stock market turbulence 2015–2016 stock market selloff Brexit stock market crash (2016) Venezuelan hyperinflation (2016–2022) 2017 Sri Lankan fuel crisis Ghana banking crisis (2017–2018) Turkish economic crisis (2018–present) Lebanese liquidity crisis (2019–present) Sri Lankan economic crisis (2019–present) COVID-19 pandemic Financial market impact 2020 stock market crash Recession Chinese property sector crisis (2020–present) 2021–2023 inflation surge 2022 Russian financial crisis Pakistani economic crisis (2022–present) 2022 stock market decline 2022–2024 German economic crisis 2023 United States banking crisis 2023–2024 Egyptian financial crisis
List of banking crises List of economic crises List of sovereign debt crises List of stock market crashes and bear markets

Secondary banking crisis of 1973–1975

Crisis

Recovery

Causes

See also

References

Further reading