Shattered on the Rock? British Financial Stability from 1866 to 2007

71 Pages Posted: 19 Feb 2009

See all articles by Alistair Milne

Alistair Milne

Loughborough University - School of Business and Economics

Geoffrey Wood

Cass Business School

Date Written: December 19, 2008


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.

Keywords: bank failure, lender of last resort, money markets, bank regulation

JEL Classification: E42, E58, N24

Suggested Citation

Milne, Alistair K. L. and Wood, Geoffrey E., Shattered on the Rock? British Financial Stability from 1866 to 2007 (December 19, 2008). Bank of Finland Research Discussion Paper No. 30/2008. Available at SSRN: or

Alistair K. L. Milne (Contact Author)

Loughborough University - School of Business and Economics ( email )

Epinal Way
Leicestershire, LE11 3TU
United Kingdom

Geoffrey E. Wood

Cass Business School ( email )

London, EC2Y 8HB
Great Britain
+44 0 20 7040 8740 (Phone)
+44 0 20 7040 8881 (Fax)

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