The Role of Law and the Failure of Northern Rock
Elgar Financial Law series
Edited by Joanna Gray and Orkun Akseli
Chapter 6: The Bank that Rocked: Does the Problem Lie in the Global Business Model of Conventional Banking?
Abdul Karim Aldohni INTRODUCTION The current global financial crisis can be described as the worst in recent history. One of the key factors that amplified the scale of this crisis is the global nature of the banking and financial market. This chapter aspires to, first, explore the concept of ‘global economy’ and address the implications of having globally interconnected banking and financial markets; second, to analyse the business model that conventional banks use in particular Northern Rock; third, to introduce the concept of Islamic finance; and finally to evaluate the performance of Islamic financial institutions in the light of the current financial turmoil. GLOBALISATION AND THE CONCEPT OF THE ‘GLOBAL ECONOMY’ Phrases such as ‘Globalisation’, ‘global community’ and others that are similar have been used frequently in the last two decades to describe the high level of interconnectivity that characterises today’s world. The concept of globalisation has not appeared suddenly but rather it developed gradually over a lengthy period of time. One of the earliest forms of globalisation is economic globalisation. For most economic theorists globalisation is a natural and eventual result of economic evolution. It could be to the surprise of many that Karl Marx, whose ideas represent the very foundation of communism, 88 GRAY PRINT.indd 88 22/06/2011 11:49 The bank that rocked 89 had predicted globalisation as an eventual outcome. However, the globalisation that he described as ‘the universal interdependence of nations’ is more or less a global communism that ought to prevail over capitalism. In reality,...
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