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Complexity and Crisis in the Financial System

Complexity and Crisis in the Financial System

Critical Perspectives on the Evolution of American and British Banking

Edited by Matthew Hollow, Folarin Akinbami and Ranald Michie

With contributions from across the disciplines of law, history, finance, and economics, Complexity and Crisis in the Financial System offers a truly interdisciplinary study of the relationship(s) between crises and complexity in the US and UK financial markets. Taken together, the contributions in this volume not only challenge many often taken-for-granted ideas about the nature of financial crises, but also broaden our understanding of the long-term causes (and consequences) of the global financial crisis of 2007–2008.

Chapter 3: Nature or nurture: the British financial system since 1688

Ranald Michie

Subjects: business and management, critical management studies, strategic management, economics and finance, economic psychology, financial economics and regulation

Abstract

In the wake of the financial crisis of 2007–08, a complete reform of the British banking system has been put in motion. This involves not only the role played by the central bank and the regulatory agencies but also the structure of banking. Financial stability is now to be prioritized while the banking system is also to be made more competitive so as to better serve the needs of the UK economy. Driving much of this agenda are examples drawn from the USA, even though the development and structure of banking in that country are fundamentally different from those of the UK. Forgotten are the lessons to be learnt from Britain’s much longer banking history, spanning over 300 years. Over that time period, Britain experienced many financial crises and, in response, solutions were devised that made the banking system both stable and competitive. This position had been achieved by the late nineteenth century, largely through natural evolution rather than government intervention. The results were then sufficient to allow the banking system to withstand the stresses caused by two world wars and a global financial crisis in the twentieth century. Studying Britain's own financial history, especially in comparison to that of the USA, provides a rich seam of evidence on what has worked for banking in the past compared to that which has not.

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