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Mr Apple Garth The way securitisation works is you borrow against pool of mortgages. The bond holders lend money against the mortgages, they carry the risk and bank do not bear any risk from these loans, so even if it shown in our balance sheet, it has to be a separate legal entity (House of commons fifth report 2007-2008). I use the balance sheet of the bank to know the funding system. A brief summary of the balance sheet is shown in the graph below. By the end of 2006 bank had 77% of its assets in residential mortgages, as mortgage lending is the major activity of the bank. The northern rock bank raised 41% of its funds from securitised debts, major fund have been raised through securitisation. About quarter of the banks total funds came from wholesale credit markets. The retail deposits contributed to 22.6 billion, unlike other banks it did not rely much on the retail deposits. About 10% of the fund was raised by issuing covered and securitised bonds. This was the strategy adopted by the northern rock bank to raise its funds. The northern rock bank had a very unusual funding strategy, this strategy was very risky. As we can see majority of funds came from money markets. When the markets became less liquid during 2007 the wholesale borrowing became difficult to borrow. The bank had to pay higher interest rates on their borrowing because of the world wide credit squeeze, this resulted to reduce the banks profit during the first half of 2007. The bank suffered by the sub prime crisis in United States as it couldn't borrow funds from the money markets, Sub prime crisis in United States was one of the reason for this trouble. The bank tried to diversify its strategy, bank attracted retail deposits from the different countries across Europe, but all theses funding strategies did not work. Because of theses reasons the bank approached Bank of England for a back stop facility, Northern Rock wanted this facility until the credit markets became liberal. Bank of England after serious consideration provided emergency loan facility.