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Banking crisis solutions old and new

Author

Listed:
  • Alistair Milne
  • Geoffrey E. Wood

Abstract

In 2007 Britain experienced its first run on a bank of any macroeconomic significance since 1866. This was not dealt with by the method that had maintained banking stability for so long: letting the bank fail but supplying abundant liquidity to the markets to prevent contagion. In this paper the authors examine why that traditional solution was not used and propose changes to Britain's deposit insurance system, to its bank insolvency regime, and in arrangements to allow customers access to banking services should their bank be closed-so that the traditional approach can once more be used to mitigate moral hazard.

Suggested Citation

  • Alistair Milne & Geoffrey E. Wood, 2008. "Banking crisis solutions old and new," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 517-530.
  • Handle: RePEc:fip:fedlrv:y:2008:i:sep:p:517-530:n:v.90no.5
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    References listed on IDEAS

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    1. Geoffrey Wood, 2000. "The Lender of Last Resort Reconsidered," Journal of Financial Services Research, Springer;Western Finance Association, vol. 18(2), pages 203-227, December.
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    Cited by:

    1. Christophe Blot & Xavier Timbeau, 2009. "Du chaos financier au K.O. économique," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(3), pages 149-178.
    2. Phillip Anthony O’Hara, 2011. "International Subprime Crisis and Recession: Emerging Macroprudential, Monetary, Fiscal and Global Governance," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 58(1), pages 1-17, March.
    3. Michael D. Bordo, 2008. "An Historical Perspective on the Crisis of 2007-2008," NBER Working Papers 14569, National Bureau of Economic Research, Inc.
    4. Murizah Osman Salleh & Aziz Jaafar & M. Shahid Ebrahim, 2011. "The Inhibition of Usury (Riba An-Nasi'ah) and the Economic Underdevelopment of the Muslim World," Working Papers 11002, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
    5. Michael D. Bordo, 2011. "A Historical Perspective on the Crisis of 2007–08," Central Banking, Analysis, and Economic Policies Book Series,in: Rodrigo Alfaro (ed.), Financial Stability, Monetary Policy, and Central Banking, edition 1, volume 15, chapter 2, pages 011-027 Central Bank of Chile.

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    Keywords

    Risk management ; Banks and banking;

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