The Role of Law and the Failure of Northern Rock
- Elgar Financial Law series
Edited by Joanna Gray and Orkun Akseli
Chapter 5: Financial Regulation Before and After Northern Rock
5. Financial regulation before and after Northern Rock 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...
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