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Shattered on the Rock? British financial stability from 1866 to 2007

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Author Info
Milne , Alistair () (Cass Business School)
Wood, Geoffrey (Cass Business School)
Abstract

In autumn of 2007 Britain experienced its first bank run of any significance since the reign of Queen Victoria. The run was on a bank called Northern Rock. This was extraordinary, for Britain had been free of such episodes because by early in the third quarter of the 19th century the Bank of England had developed techniques to prevent them. A second extraordinary aspect of the affair was that it was the decision to provide support for the troubled institution that triggered the run. And thirdly, unlike most runs in banking history, it was a run only on that one institution. This paper considers why the traditional techniques for the maintenance of banking stability failed – if they did fail – and then considers how these techniques may need to be changed or supplemented to prevent such problems in the future. The paper starts with a narrative of the events, then turns to banking policy before the event and to the policy responses after it. We suggest both why the decision to provide support triggered the run and why the run was confined to a single institution. That prepares the way for our consideration of what should be done to help prevent the recurrence of such episodes in the future.

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Publisher Info
Paper provided by Bank of Finland in its series Research Discussion Papers with number 30/2008.

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Length: 68 pages
Date of creation: 10 Dec 2008
Date of revision:
Handle: RePEc:hhs:bofrdp:2008_030

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Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
Web page: http://www.bof.fi/en/tutkimus
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Related research
Keywords: bank failure; lender of last resort; money markets; bank regulation;

Find related papers by JEL classification:
E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
N24 - Economic History - - Financial Markets and Institutions - - - Europe: 1913-

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This page was last updated on 2009-11-12.

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