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Lessons from the Northern Rock Episode

In: Financial Institutions and Markets

Author

Listed:
  • David G. Mayes
  • Geoffrey Wood

Abstract

We consider the lessons that might be learned by other countries from the problems with Northern Rock and the reactions of the UK authorities. We ask whether the surprise of the run on the bank came because economic analysis did not provide the right guidance, or whether it was simply a problem of practical implementation. We conclude it was the latter and that as a result other countries will want to review the detail of their deposit insurance and their regimes for handling banking problems and insolvency. The relationships between the various authorities involved were shown to be crucial; were a similar problem to occur in a cross-border institution, the difficulties experienced in the UK could be small by comparison.

Suggested Citation

  • David G. Mayes & Geoffrey Wood, 2009. "Lessons from the Northern Rock Episode," Palgrave Macmillan Books, in: Robert R. Bliss & George G. Kaufman (ed.), Financial Institutions and Markets, chapter 4, pages 75-99, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-10324-5_4
    DOI: 10.1057/9780230103245_4
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    Cited by:

    1. David G. Mayes, 2009. "The Role Of Central Banks In Financial Supervision And Regulation," Economic Affairs, Wiley Blackwell, vol. 29(3), pages 40-46, September.
    2. David G. Mayes, 2008. "Avoiding the Next Crisis," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 9(4), pages 44-50, December.
    3. David G. Mayes, 2009. "Banking Crisis Resolution Policy - Lessons from Recent Experience - which elements are needed for robust and efficient crisis resolution?," CESifo Working Paper Series 2823, CESifo.
    4. Ojo, Marianne, 2009. "Reviewing regulatory objectives: should the scope of regulation be extended?," MPRA Paper 15547, University Library of Munich, Germany.
    5. Hyun Song Shin, 2009. "Reflections on Northern Rock: The Bank Run That Heralded the Global Financial Crisis," Journal of Economic Perspectives, American Economic Association, vol. 23(1), pages 101-119, Winter.

    More about this item

    Keywords

    Northern Rock; bank failure; bank run; deposit insurance; lender of last resort;
    All these keywords.

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • E53 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Deposit Insurance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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