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Late in 2001, the Financial Services Authority (FSA) introduced a new set of arrangements for deposit protection in the UK. While the changes involve a welcome improvement on previous arrangements, much more could be done to enhance their overall cost‐effectiveness. This paper explains the flaws in previous and current arrangements and, using a relatively crude but nevertheless objective measure of the extent of their compliance with International Monetary Fund (IMF) best practice ‘rules’, compares their degree of ‘incentive‐compatibility’ (or economic efficiency ‐ ie the extent to which they minimise the problems created by adverse selection, moral hazard and principal/agency conflict) with the counterpart schemes operating elsewhere in the European Union and beyond. In this way, areas for future improvements are identified, which will ideally require accommodating changes in the guiding Deposit Guarantee Schemes Directive.

Despite significant changes to the governing institutional framework and to operational procedures, a number of serious doubts remain concerning the cost‐effectiveness of banking regulation and supervision in Japan. This paper duly highlights these lingering doubts focusing, in particular, on failure resolution policy and the authorities’ handling of the banks’ bad debt problems. The paper concludes by making suggestions as to how the Japanese authorities might improve the situation, to the mutual benefit of Japan and the world economy. (This paper represents a revised and updated version of a presentation given at the London Financial Regulation Group’s Conference on ‘The Institutional Organisation of Banking Supervision’ held at the London School of Economics on 7‐8th December, 2001.)

This paper is published in two parts. The first, which is published here, starts by considering the background to UK banking supervision and examining the effectiveness of the Bank of England and BCCI's auditors in the supervision of BCCI. The author then assesses the suitability of the Banking Act 19.87 following which is a list of recommended reform measures. The first part of the paper concludes with a consideration of banking supervision in Luxembourg. Part two of the paper examines deficiencies in the international supervision of banking and will be published in the next issue of The International Journal of Regulatory Law and Practice, Volume 1 Number 3.

During 1993 Member States of the European Union formally adopted two Directives—the Investment Services Directive and the Capital Adequacy Directive—concerned with the operation of investment business. This paper outlines the provisions contained in these Directives, which have to be enshrined in national law by the end of 1995 at the latest, explaining the role they play within the broader Single Market programme for financial services. A simple ‘cost‐benefit’ analysis of their likely impact, mainly on UK intermediaries, is also provided.

On 26th February, 1995 much of the UK merchant banking group Barings was placed in administration following a failed attempt by the Bank of England to find a buyer in the wake of massive losses incurred on unauthorised trades. The group, however, was subsequently bought by the Dutch financial services group ING. While recognising that many parties contributed, directly or indirectly, to the collapse of Barings, this paper focuses on the role played by the Bank of England as the main UK supervisor of the Group. It draws upon the findings of the official enquiries conducted in both the UK (by the Board of Banking Supervision) and Singapore (on behalf of the Singapore Ministry of Finance).

This is the second of a two‐part paper, the first part of which was published in The International Journal of Regulatory Law & Practice Volume 1 Number 2, pp. 170–184. This part considers some of the multinational initiatives that have been undertaken for the supervision of international banks both within the EC and outside it. Deficiencies in the international arrangements for bank supervision are noted before some suggestions for reform are set out. The author concludes with a timetable of events outlining BCCI's history.

Given the current malaise in the Japanese banking sector and the failure of Japanese authorities to take speedy and appropriate action to address the situation, investors' confidence in Japanese financial institutions is at a very low ebb. Under pressure from both home and overseas, however, a new supervisory framework is emerging which should serve to increase the cost‐effectiveness of banking supervision in Japan. This paper explains what the new supervisory framework entails and makes suggestions as to how the cost‐effectiveness of policy could be yet further enhanced.

In June 1994, and despite serions misgivings front the finance industry and investors alike, the Personal Investment Authority (PIA) was ‘recognised’ as the new retail self‐regulatory organisation (SRO)for the investment business industry in the UK. This paper traces the background to this event and the development of the PIA from inauguration to recognition. It also examines the concerns expressed by its critics and the findings of the all‐party Treasury and Civil Service Committee, which produced an interim report on the subject. It concludes by considering some alternative reform proposals and asking what the future holds for the PIA.

The purpose of the paper is to explain how UK bank failure resolution policy has evolved since the nationalisation of Northern Rock in February 2008 in the light of the fallout from the sub‐prime crisis and the subsequent credit crunch.

The evolution of the UK authorities' approach, from a piecemeal approach to a comprehensive, system‐wide approach, is traced through analysis of the treatment accorded the troubled entities Alliance and Leicester, HBOS (both the subject of separate officially brokered takeover‐rescues) and Bradford and Bingley (eventually nationalised, like Northern Rock) prior to consideration of the two industry‐wide bailout schemes introduced in October 2008 and January 2009.

Confounding initial hopes, Northern Rock proves to be just the first of a series of major institutional casualties of the fallout from the sub‐prime crisis, eventually necessitating a comprehensive and system‐wide solution. While this successfully prevents the system from literally collapsing in the Autumn of 2008, in the wake of the decision not to rescue Lehman Brothers in the USA, it fails to stimulate lending, as intended. Accordingly, a second industry bailout package was introduced in January 2009, but even this may fail to secure the main goals of intervention‐financial stability and a resuscitation of bank lending to support the ailing economy‐heralding possible further state inroads into domestic bank ownership.

The paper clearly identifies the need for, and nature of, both the ad hoc and system‐wide solutions adopts to deal with individual cases of institutional “failure” and the wider stability concerns, respectively. The authorities' actions are subject to critical analysis, while a personal assessment of both the House of Commons Treasury Committee's report on Northern Rock and the tripartite authorities' reform proposals, which culminate in the Banking Act of 2009, is also provided.

On 14 September 2007, after failing to find a “White Knight” to take over its business, Northern Rock bank turned to the Bank of England (the Bank) for a liquidity lifeline. This was duly provided but failed to quell the financial panic, which manifested itself in the first fully‐blown nation‐wide deposit run on a UK bank for 140 years. The purpose of this paper is to analyse why these events unfolded and what can be done to prevent a repetition.

This paper briefly explains the background to these extraordinary events before setting out, in some detail, the tensions and flaws in UK arrangements which allowed the Northern Rock spectacle to occur.

None of the interested parties – the Bank, the Financial Services Authority and the Treasury – emerges with their reputation intact, and the policy areas requiring immediate attention, at both the domestic and international level, are highlighted. Some reform recommendations are also provided for good measure, particularly in the area of formal deposit protection.

The analysis and recommendations contained in this paper are offered up as a contribution towards and stimulant of this wider debate which is urgently needed, given the continuing threats faced by the domestic and international financial system.