Saturday , January 16 2021
Home / Amol Agrawal: Mostly Economics / When the Bank of England rescued Midland Bank in early 1990s

When the Bank of England rescued Midland Bank in early 1990s

Summary:
As we are dealing with several bank failures and rescues in India, good to read about another bank from other country. Clive Horwood refers to an extract from the book by Prof Harold James – Making a Modern Central Bank – The Bank of England 1979-2003: It was inherent in the mandate of the Bank of England in the 1980s and 1990s, as overseer of UK financial services, that its successes remained hidden in the shadows, while its failures were exposed to the harshest of lights. Those two decades saw high-profile collapses, including of the Bank of Credit and Commerce International and Barings, which provoked much criticism of the Bank. This led, in 1997, to a new Labour government handing supervision of UK banking to a newly-created Financial Services Authority under the aegis of HM

Topics:
Amol Agrawal considers the following as important: , ,

This could be interesting, too:

Amol Agrawal writes The comeback path for DFIs is strewn with strategic challenges

Amol Agrawal writes Pandemic creates a new economic channel: scarring effect

Amol Agrawal writes Economic uncertainty and divisive politics: evidence from Spain 1905-45

Amol Agrawal writes Personnel Management and School Productivity: Evidence from India

As we are dealing with several bank failures and rescues in India, good to read about another bank from other country.

Clive Horwood refers to an extract from the book by Prof Harold James – Making a Modern Central Bank – The Bank of England 1979-2003:

It was inherent in the mandate of the Bank of England in the 1980s and 1990s, as overseer of UK financial services, that its successes remained hidden in the shadows, while its failures were exposed to the harshest of lights.

Those two decades saw high-profile collapses, including of the Bank of Credit and Commerce International and Barings, which provoked much criticism of the Bank. This led, in 1997, to a new Labour government handing supervision of UK banking to a newly-created Financial Services Authority under the aegis of HM Treasury.

As Chancellor of the Exchequer Gordon Brown simultaneously granted it independence from the government over monetary policy, 1997 saw the biggest change in the Bank of England’s role in its 300-year history.

These events are central to a fascinating new book by Harold James, Making a Modern Central Bank – The Bank of England 1979-2003. James, professor of history at Princeton University and a leading economic historian, lifts the lid on events that prompted an economic and monetary revolution that still reverberates through global finance today.

The book, the events and issues it covers, and the implications of those events to financial markets today, will be discussed during an OMFIF meeting on Monday 23 November which will feature the participation of many of the leading actors in these dramas. They include Mervyn King, Norman Lamont and Ed Balls.

James, who was granted unprecedented access to the Bank’s archives and spoke to many of the leading Bank officials, uncovers an important bank intervention that has remained out of the public realm, until now.

In an extract from the book below, James tells of how in 1991 Midland Bank was close to collapse and the Bank stepped in quickly, effectively and with the utmost secrecy, to save it.

This was the Bank at its best, using its knowledge, financial firepower and absolute authority to shore up Midland, bring in new leadership (no easy task given the personalities involved) and prevent a collapse. Midland’s failure would have cost the UK billions in bail-outs and lost economic activity, and might have spread to a wider banking crisis as happened in the early 1990s in other European countries. A year later, Midland’s future was secured through its takeover by HSBC – a marriage that Bank officials, including the governor, doubted would ever happen.

These revelations prompt a number of questions that are still relevant today. If Brown and the Labour party had known of the Bank’s success in saving Midland, might that have outweighed their concerns about its failures? But how could Brown have known when even senior government and Treasury officials in 1991 had no knowledge of the intervention? If the Bank had remained in charge of supervision of banks in the run-up to the 2008 financial crisis, might it have foreseen some of the problems building up at the likes of the Royal Bank of Scotland, HBOS and Northern Rock and stepped in, saving taxpayers hundreds of billions?

Amol Agrawal
I am currently pursuing my PhD in economics. I have work-ex of nearly 10 years with most of those years spent figuring economic research in Mumbai’s financial sector.

Leave a Reply

Your email address will not be published. Required fields are marked *