Financial Regulation in Crisis?

Financial Regulation in Crisis?

The Role of Law and the Failure of Northern Rock

Elgar Financial Law series

Edited by Joanna Gray and Orkun Akseli

The depositor run on the Northern Rock bank in September 2007, which led to the bank’s subsequent nationalisation was the first run on a UK bank for nearly 150 years and was a seminal moment in the unfolding global financial crisis. This book provides a detailed legal analysis of the role played by financial law and regulation during this event, and the impact the episode made on the law. The contributors to the book explore and elaborate upon the legal technique of securitisation, and how Northern Rock itself created and employed securitised financial assets. There is also in-depth discussion and analysis of the origin of the problems experienced in the wholesale interbank markets surrounding the Northern Rock crisis.

Chapter 5: Financial Regulation Before and After Northern Rock

Joanna Gray

Subjects: economics and finance, financial economics and regulation, law - academic, european law, finance and banking law


Joanna Gray Just over three years ago queues of worried and panicking bank depositors began to form in the streets outside the branches of the UK’s tenth largest bank and fifth largest mortgage lender in one of the largest and most sophisticated financial economies in the world.1 Narratives and analyses of causes and responsibility for what was the first run on a major UK bank since the late 19th Century can be found in subsequent official reports2 and the academic literature in law, economics and public policy and these will continue to be developed and debated in years to come. However, one thing became crystal clear in mid-September 2007 and that was that the institutions and processes put in place for the maintenance of financial stability and the prevention of bank runs and panics by the last major reform in UK financial regulation had not worked. That reform first conceived in 1997 on the election of a Labour Government transferred responsibility for the prudential supervision of deposittaking institutions from the Bank of England3 to the newly formed Financial Services Authority established and empowered by the Financial Services and Markets Act 2000. As the crisis in the financial system has deepened and spread into the real economy there has been much fundamental ‘back to basics’ rethinking around some of the assumptions made about the optimal structures, institutions, objectives and substantive content of financial regulation both in the UK and indeed around the world that cannot be effected without changes to the...

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