(…) With credit and money markets essentially frozen and equity prices plummeting, banks and other financial firms saw their access to funding eroded and their capital shrink owing to accumulating mark to market losses.” The Lehman bankruptcy had triggered a widespread crisis of confidence. Among other repercussions of the Lehman Brothers collapse, the above-mentioned virtually completed sale of Glitnir assets did not materialise. This kicked off the well-known chain of events. Glitnir turned to the Central Bank for assistance. Not only was the bank unsuccessful in its attempt to sell assets, it was unable to renew a bank loan that it had expected to extend without any difficulty. Ultimately, the Government decided that the Treasury should acquire a majority holding in Glitnir, but before that could be finalised, the bank collapsed. In early October, there was substantial pressure on Landsbanki’s deposit accounts in London, and the British Financial Services Authority (FSA) steadily tightened the demands it made on the bank. Landsbanki’s liquidity difficulties became insurmountable, and it was clear that rescuing the bank would not represent prudent use of the Central Bank’s foreign exchange reserves. The amounts involved were simply too large. By this time, only Kaupthing remained of the three large banks. In view of the prospects for Kaupthing’s liquidity, the bank was deemed likely to survive the storm. On the basis of that assumption, the Central Bank, after consulting the Government, granted Kaupthing a collateralized fourday loan that should have sufficed – as things stood then.
In these funds, the cost is the risk of suspension or the risk of dilution as other investors exit first. The opacity of those costs tilts the investment playing field towards funds that offer daily redemption. And that tilting of the playing field could have been a barrier to the opportunity to invest in the most illiquid assets – assets that require great patience, such as infrastructure, private equity or venture capital. The fund industry itself notes that funds offering daily dealing are “not realistic for funds investing in highly illiquid assets”. 20  See report by the Task Force on Climate-related Financial Disclosures (June 2019): ‘2019 Status Report’. See report to Government by the Green Finance Taskforce (March 2018): ‘Accelerating Green Finance‘. See page 49 of the Investment Association UK Funds regime working group report (June 2019) ‘Final report to HM Treasury Asset Management Taskforce’. 18 19 20  11  All speeches are available online at www.bankofengland.co.uk/news/speeches  11  So the unlevel playing field could have been a barrier to greater investment in patient forms of capital – a central tenet of the government’s framework for raising productivity.21  For a fair and transparent fight, the risk of suspension or dilution would be properly factored into the pricing and redemption terms of open-ended funds. If that were the case, those funds that invest for the long term and require more patience from investors could look relatively more attractive.