Could the Crisis at Northern Rock Have Been Predicted?: An Evolutionary Approach

Posted: 30 Jun 2008

See all articles by Victoria Chick

Victoria Chick

University College London - Department of Economics

Date Written: 2008

Abstract

Bankers have, from their beginning, made their money by taking risks and deciding how much risk they dare take, by expanding gradually, testing the water. Within this framework, the first risk is of illiquidity, but they must also ensure solvency. The steps taken by Northern Rock in developing their present ‘business plan’ are the same as those taken by most other banks, responding to the same incentives. It is the rapidity of its expansion that resulted in its downfall. The steps that have been taken also by other banks can be traced back to the beginning of banking and are predictable. Northern Rock's difficulties were predictable - and were predicted.

Suggested Citation

Chick, Victoria, Could the Crisis at Northern Rock Have Been Predicted?: An Evolutionary Approach (2008). Contributions to Political Economy, Vol. 27, Issue 1, pp. 115-124, 2008, Available at SSRN: https://ssrn.com/abstract=1153242 or http://dx.doi.org/bzn007

Victoria Chick (Contact Author)

University College London - Department of Economics ( email )

Gower Street
London WC1E 6BT, WC1E 6BT
United Kingdom

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