Making banking crisis proof: Helping the Bank of England and financial analysts learn from past crises

Researchers at Queen’s have carried out work focusing on historical financial crises to help shed light on why they happen and what we can do to prevent them in the future.

The research has had a beneficial impact on policy-making, professional practice, and the historical awareness and knowledge of staff at the Bank of England. It has also had a beneficial impact on the non-academic study of business history and has reached tens of thousands of financial analysts.

Research Challenge

The 2008 financial crisis had staggering political and financial implications which were felt across the globe. Few could have predicted its arrival, nor the effect of its lasting impact, still prevalent across global markets today.

But what were the main causes of the crash? Could it have been predicted and can the lessons of the past help us to prevent another banking collapse in the future?

Our Approach

Much of the research is underpinned by books authored by Queen’s academics: ‘Banking in Crisis: The Rise and Fall of British Banking Stability’ by Professor John. D Turner (2014).

‘Banking in Crisis’ was the first academic study to tell the story of the rise and fall of British banking stability over the past two centuries, and it sheds new light on why banking systems crash and the factors underpinning banking stability.

The research investigated why historical banking systems have been stable and what makes them stable. One of the chief insights is the important role that extended shareholder liability has played in creating stable banking systems.

Using a novel approach to measure the stability of a banking system Campbell, Coyle and Turner developed a monthly index of bank share prices stretching back to 1825 and used this index to assess banking stability and identify banking crises. The main lesson for central bankers and policymakers is that banking can only be stable if bank shareholders have ‘skin in the game’ or if banks face stringent government controls on their assets and lending.

What impact did it make?

Turner’s research has had a beneficial impact on policy-making, professional practice, and the historical awareness and knowledge of staff at the Bank of England, particularly with regard to its prudential objectives.

Insights from his research have reached an estimated 125,000 financial analysts across the globe. His book, Banking in Crisis, has been recognised by the Business Archives Council for the contribution which it has made to the study – academic and professional – of business history.

Between 2014 and 2019 Turner has helped the Bank of England embed financial history into its policymaking, drawing on his research and expertise accumulated while preparing Banking in Crisis, participating in several advisory commitees on banking governance.

‘Banking in Crisis’ was awarded the Wadsworth Prize 2014 by the Business Archives Council. The citation from the prize committee stated the following: “This is both an original and an important book. It provides a lucid analysis and critique of the development of British banking over the last two centuries…Banking in Crisis elucidates with admirable clarity complex financial concepts and debates as context for discussion of the long- term development of British banking…In sum, it is a book that is original, insightful, persuasive, timely and highly readable.”