In this workout we're told Northern Rock was a bank nationalized by the UK government in 2008. Based on the charts below, what were the issues with Northern Rock. On the left hand side, we've got an assets chart, and we can see there were four types of assets, and underneath that we can see those assets add up to 100%. In the right hand chart, we've got their liabilities and equity. There are six types and again, they all add up to 100%.

So what issues do we see here? Well, residential mortgages, which are normally very long-term assets accounted for more than three quarters of Northern rocks assets.

However, rather than just using very stable customer deposits for its source of financing, it was hugely reliant on wholesale funding, 24%, which is short term borrowing and is highly unstable.

When financial markets started to get nervous about mortgages, i.e. customers being unable to pay their mortgages, wholesale funding markets stopped lending to anyone who looks like they might have lots of mortgage assets. Not a problem if you have lots of stable customer deposits. But a big problem for Northern Rock who only had 22% of their liabilities being retail deposits due to Northern Rock's, inability to access liquidity to continue its maturity transformation efforts, turning these short-term funding into very long-term mortgage assets over here. Then the Bank of England was forced to step in as the lender of last resort. So a big liquidity issue here, short-term funding being used for long-term assets.