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Lessons from the Northern Rock affair

Author

Listed:
  • Kevin Keasey
  • Gianluca Veronesi

Abstract

Purpose - This paper seeks to analyse reasons behind the difficulties faced by Northern Rock (NR) and the UK financial system and proposes a return to a more traditional/prudent banking business model, based on a sound balance between sources and uses of funds. Design/methodology/approach - The paper outlines the background to the credit crunch and presents a simple model of a bank and NR's business model. Conclusions and implications are drawn. Findings - It is suggested that credit rating agencies should provide a better assessment of the risks involved in securitised instruments by focusing on clarity and transparency and hence allowing liquidity risk of loan originators to be comprehensively understood. Moreover, the efficacy of the existing regulatory framework requires the tripartite system of supervision (Treasury, Bank of England, and FSA) to assume a more alert role in order to avoid asset bubbles in the first place rather than interveningex post. Originality/value - The paper will give rise to a series of new research streams – all of which are much needed, given the fragile state of the financial systems.

Suggested Citation

  • Kevin Keasey & Gianluca Veronesi, 2008. "Lessons from the Northern Rock affair," Journal of Financial Regulation and Compliance, Emerald Group Publishing Limited, vol. 16(1), pages 8-18, February.
    • Handle: RePEc:eme:jfrcpp:v:16:y:2008:i:1:p:8-18
    DOI: 10.1108/13581980810853181
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    Citations

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    Cited by:

    1. Kenneth Patrick Vincent O'Sullivan & Stephen Kinsella, 2013. "Financial and regulatory failure: The case of Ireland," Journal of Banking Regulation, Palgrave Macmillan, vol. 14(1), pages 1-15, January.
    2. J. N. Marshall & A. Pike & J. S. Pollard & J. Tomaney & S. Dawley & J. Gray, 2012. "Placing the run on northern rock," Journal of Economic Geography, Oxford University Press, vol. 12(1), pages 157-181, January.
    3. Ahmed Arif & Mohammad Afzal, 2012. "Credit Risk and Shareholders’ Value in a Developing Economy: Evidence from Pakistani Banking System," Journal of Economics and Behavioral Studies, AMH International, vol. 4(2), pages 87-95.

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