Working Paper

The British tripartite financial supervision system in the face of the Northern Rock run

Abstract: The Northern Rock debacle - Britain's first bank run in 141 years - was the Tripartite regulatory system's first live ammunition test since its establishment in 1997. The aftermath of the crisis lists the destruction of Britain's fifth largest mortgage lender, the tarnishing of the Bank of England's well-established reputation, and the loss of confidence in the reformed regulatory system - a system that had been considered a paragon by policymakers and reformers around the world. As market observers, politicians, investors and bankers criticize not only the mortgage lender for its extreme business model - but also the Tripartite regulatory system for mishandling the crisis - it is important to piece the story together and draw lessons from it. This paper examines the Tripartite's management of the crisis and concludes that the separation between the roles of banking supervision and Lender of Last Resort, coupled by Britain's flawed deposit insurance scheme, account for the British regulatory system's mishandling of the funding shortage that escalated into a bank run.

Keywords: Banks and banking - Great Britain; Great Britain; Bank supervision;

Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Supervisory Policy Analysis Working Papers

Publication Date: 2008

Number: 2008-01