Matthew's Journal

Actually, HBOS has a problem that the other big banks don't. It has a much higher ratio of lending to retail deposits than all of the other big UK banks. It therefore obtains money to lend on a larger part of its mortgages through the commercial market than any other UK bank (the previous recordholder in this regard being Northern Rock). When banks stop wanting to lend to each other, the cost of this commercial market borrowing (the interest rate on this is known as LIBOR) goes up, making companies who are more reliant on it less profitable.

If any big UK bank was at risk from the commercial lending market continuing to seize up (the issue which killed Northern Rock), it was HBOS. It was therefore the first to be the subject of short selling.