How to prevent another Northern Rock

RES logoCrisis regulation may help avoid another Northern Rock style panic, according to research by Professors Shurojit Chatterji and Sayantan Ghosal presented at the Royal Economic Society’s 2008 annual conference.

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But the authorities should not always aim to prevent bank runs – on the contrary, when regulators cannot monitor banks and fine those that are behaving irresponsibly, the possibility of bank runs is needed to prevent banks from lending irresponsibly in the first place.

In September 2007, Northern Rock suffered the first bank run on a British bank in over a century. The spectacle of depositors queuing up in front of the high street branches of the Northern Rock has prompted much commentary on the stability of the financial systems and the global consequences of the subprime crisis in the United States.

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