Complexity and Crisis in the Financial System Complexity and Crisis in the Financial System Critical Perspectives on the Evolution of American and British Banking Edited by Matthew Hollow University of York, UK  Folarin Akinbami Durham University, UK Ranald Michie Durham University, UK Cheltenham, UK • Northampton, MA, USA © Matthew Hollow, Folarin Akinbami and Ranald Michie 2016 All rights reserved No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical or photocopying, recording, or otherwise without the prior permission of the publisher Published by Edward Elgar Publishing Limited The Lypiatts 15 Lansdown Road Cheltenham Glos GL50 2JA UK Edward Elgar Publishing, Inc William Pratt House Dewey Court Northampton Massachusetts 01060 USA A catalogue record for this book is available from the British Library Library of Congress Control Number: 2015945475 This book is available electronically in Business subject collection DOI 10.4337/9781783471331 ISBN 978 78347 132 (cased) ISBN 978 78347 133 (eBook) 06 Typeset by Servis Filmsetting Ltd, Stockport, Cheshire Contents List of figuresvii List of tablesviii List of contributorsix Acknowledgementsxv Introduction: rethinking the crises–complexity nexus Matthew Hollow PART I  COMPLEXITY AND CRISES IN FINANCIAL SYSTEMS   Financial innovation and the consequences of complexity: insights from major US banking crises Robert F Bruner, Sean D Carr and Asif Mehedi 13   Entrepreneurial failure and economic crisis: a historical perspective36 Mark Casson   Nature or nurture: the British financial system since 1688 Ranald Michie 60   The British banking population: 1790–1982 Ian Bond 85 PART II  LEGISLATIVE AND STRUCTURAL CHANGES IN THE FINANCIAL SECTOR   From tort to finance: Delaware’s sedative duty to monitor Dalia Tsuk Mitchell 121   Demutualization and risk: the rise and fall of the British building society Andrew Campbell and Judith M Dahlgreen 149   Directors in the dock: joint-­stock banks and the criminal law in nineteenth-­century Britain James Taylor 164 v vi Complexity and crisis in the financial system   UK corporate law and corporate governance before 1914: a re-­interpretation James Foreman-­Peck and Leslie Hannah 183   Effective risk management and improved corporate governance214 Roman Tomasic and Folarin Akinbami PART III  MANAGING AND REGULATING COMPLEX FINANCIAL SYSTEMS 10 The historical development of the US government’s responses to economic and financial crises Peter H Bent 11 From the mid ­nineteenth-­century bank failures in the UK to the twenty-­first-­century Financial Policy Committee: changing views of responsibility for systemic stability T.T Arvind, Joanna Gray and Sarah Wilson 12 Financial reporting, banking and financial crisis: past, present and future Mark Billings 13 Financial crises and disaster management John Singleton 243 261 287 306 Index329 Figures   1.1 US banking crises, bank assets and GDP growth, 1834–2013 16   3.1 The number of UK banks, 1559–2008 63   3.2 The number of UK banks/nominal value of UK national debt, 1750–1850 65   3.3 The number of US banks, 1782–2013 75   4.1 British banking population: active firms, 1790–1982 99   4.2 British banking population: new firms, 1790–1982 99   4.3 British banking population: exits by merger, 1790–1982 100   4.4 British banking population: exits by failure and closure, 1790–1982100   4.5 Country banks, 1800–1842 104 13.1 Revised Disaster Management Cycle 310 vii Tables 1.1 Case studies – innovations in financial instruments, institutions and markets 2.1 Crises originating in or impacting upon the UK, 1600–2007 2.2 Simple typology of the normal state of the economy and a crisis-­prone state 4.1 Other banking population estimates, 1844–1884 (England and Wales only) 4.2 Other banking population estimates, 1884–1924 (England and Wales only) viii 32 41 53 105 106 Contributors Folarin Akinbami joined J.P Morgan as an Associate in February 2015 Prior to this, he was Lecturer in Commercial Law at Durham University, where he taught and researched Financial Regulation and Corporate Governance He was seconded to the Law Commission of England and Wales, as Team Lawyer, between October 2013 and June 2014, where he worked on the Fiduciary Duties of Investment Intermediaries project Prior to his appointment as a lecturer, he was a Post-­Doctoral Research Associate in Durham Law School and the Institute of Hazard, Risk and Resilience (IHRR) at Durham University The research in this book was carried out while he was at Durham University and he is pleased to have worked on the Leverhulme Trust-­funded ‘Tipping Points’ project at Durham He is also pleased to have co-­authored a number of articles and chapters with Professor Roman Tomasic T.T Arvind is Professor of Law at Newcastle Law School, having entered academia after several years as a commercial practitioner He has published extensively in the areas of legal history and private law His recent work has explored the connections and boundaries between the worlds of common law and regulatory action He is the author of The Law of Obligations: A New Realist Approach (in press), and the joint-­editor, with Jenny Steele, of Tort Law and the Legislature: Common Law, Statute and the Dynamics of Legal Change (Hart, 2013) He was awarded the ICLQ Young Scholar Prize in 2010 and the Society of Legal Scholars Best Paper Prize in 2009 Peter H Bent is a Marie Curie Early Stage Research Fellow in the Department of Economics at the University of Oxford and a PhD student in economics at the University of Massachusetts, Amherst Before beginning his doctoral studies, he earned an MSc in Economic History (Research) at the London School of Economics and an MA in Economics at the University of New Hampshire His current research focuses on the role that international capital flows played in financial crises during the classical gold standard era Mark Billings is Senior Lecturer in Accounting and Business History at the University of Exeter Business School He has previously held various ix x Complexity and crisis in the financial system administrative and financial management positions in investment banking and business, and academic posts at the City University Business School, London, Sheffield Hallam University and Nottingham University Business School He is a graduate in economics and holder of an MSc in Financial Management from the Universities of Sheffield and London, respectively, and has been a member of the Institute of Chartered Accountants in England and Wales since 1985 His research interests are in banking, financial and accounting history and financial reporting, and he currently teaches undergraduate courses on corporate governance and auditing Ian Bond worked as an economist at the Bank of England for over 30 years His career included work on monetary policy (in particular as Head of the Structural Economic Analysis Division and as a member of the Monetary Policy Committee secretariat), but was mainly devoted to financial stability and prudential policy issues – latterly as Head of the Financial Resilience Division, a role which included responsibility for the  Bank’s payment systems oversight function and for the development of the Bank’s approach to the management of financial crises Since his retirement from the Bank, he has been undertaking research on the patterns of bank failure in the UK since the end of the eighteenth century and on the structural and legislative changes associated with that experience He was a member of the Advisory Council for the ‘Tipping Points’ project at the IHHR in Durham Robert F Bruner is University Professor, Distinguished Professor of Business Administration, and Dean Emeritus of the University of Virginia’s Darden School of Business A faculty member since 1982 and winner of leading teaching awards at the University of Virginia and within the Commonwealth of Virginia, he 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Financial Crisis (1997–8) asset price bubble concept of 14 asymmetric information theory 20 association with complexity 27 Australia 227, 276, 292 New South Wales Court of Appeal 228 Austria 292, 314 Bagehot, Walter Bangladesh 307 Bank for International Settlements 17 Bank of America acquisition of Merrill Lynch 221 Bank of Credit and Commerce International (BCCI) 318 failure of (1991) 292 Bank of England 31, 60–62, 64, 66, 68–9, 72, 97, 101, 107, 111, 221, 262, 269, 271–4, 288–92, 296, 319 accounts held at 69–70 cash notes issued by 64–5, 86–7 creation of (1694) 61 Financial Policy Committee (FPC) 279 Prudential Regulatory Authority 278 state ownership of 71 statistical reporting population of 88 Bank of New York 22 Bank of the United States (BUS) 13, 21–2 founding of 20–21 shares 21–2 Bankers’ Almanac 91–4, 108 Bankers’ Almanac and Year Book (1983) 92, 111 Barclays 102 branches operated by 68 Baring Brothers failure of (1890) 25, 36 Barnes v Andrews (1924) 128 Basel II 287 Basel III 322 Bath (UK) 90 BCCI 111 329 330 Complexity and crisis in the financial system Bear Sterns acquired by J.P Morgan 221 Belgium 315 Bellman, H 153 Bernanke, Ben 256, 319 Chairman of Federal Reserve 30 Beverley 159 Birkbeck Bank 97 Birmingham (UK) 149–50 BNP Paribas 221 Boleat, Mark Deputy Secretary General of BSA 158 Bottomley, Horatio 201 Briggs v Spaulding (1891) 5, 121, 123–4, 129 significance of 125–7 Britannia Building Society merger with Co-operative Bank 298 British and Commonwealth Merchant Bank failure of (1990) 111 British Bankers’ Association (BBA) 88 British Broadcasting Corporation (BBC) 263 British Losses 95–7, 113 brokerage firms 27–8 Bruce, Sir Gainsford 177 building societies 149–55, 160–61 legislation 154–5 mutuality 153–4, 159 societal impact of 151–2, 158, 160 structure of 150–51 Building Societies Association (BSA) 152 founding of (1775) 149 members of 149, 158 Bullion Committee 103 Cadbury Report (1992) 218–19 Calico Printers Association 200 Calomiris, Charles W 19 Fragile by Design (2014) 60 Campbell, Lord Chief Justice John 170 Canada 292 Nova Scotia Halifax 307 capital 50, 184, 200, 291–2, 322 adequacy rates 297 financial 45–6 gains 48, 50–51 markets 224 private 190 regulatory 292 share 191–2 capitalism 39, 271 laissez-faire 317 Carlisle, John US Treasury Secretary 26 Carney, Mark 279 Governor of Bank of England 277 Carosso, Vincent 27 Charing Cross Bank 97 failure of (1911) 108 China, People’s Republic of Hong Kong 292 Churchill Insurance 222 Citigroup market capitalization of 121 personnel of 142 shareholders of 142–3 use of CDOs 141–2 Citizens Financial Group of Rhode Island 222 City of Glasgow Bank 106, 274, 276 collapse of (1878) 174, 176–7, 292 imposition of losses on shareholders (1878) 67 City of London 62–4, 72, 177, 222, 274–5 see also London Civil War see American Civil War Cleveland, Grover 252 Cockburn, Chief Justice Alexander 172–3 Cohen Report (1945) 289 collateralized debt obligations (CDOs) 141–2, 221 role in Global Financial Crisis (2007–9) 30 Colwyn Commission 108–9 Report (1920) 101–2 Committee of London Clearing Bankers (CLCB) members of 108 Index ­331 complex system theory 2, 13 complexity 1–2, 15, 245–6, 257–8 economic 246 information asymmetry associated with 27 systemic 33 Conservative Party (UK) 72 Co-operative Bank 102 merger with Britannia Building Society 298 corporate executive personnel directors 121, 125–7, 130–31, 133–5, 137, 189–90 duties of 5, 121–4, 128–9, 131–4, 136, 140 independent 133–4 liability of 121, 131–2, 136–8, 226–7 risk empowerment of 121–2, 137 officers 121 corporate legislation 122, 184, 192 criminal 135 credit 318, 320 access to 72 instruments 138 management of 297 provision of 63 credit crunch 36, 40, 45 credit default swaps (CDSs) role in Global Financial Crisis (2007–9) 30 credit rating agencies shortcomings of 30–31 crises 1–2, 37–40, 45, 53–5, 297–8 banking 15, 20–32, 36, 52, 72 capitalist 39 economic 36, 247–8 definition of 244 depression 248–9 origins of 3–4 economic theory of 45–7, 56–7 commitment 48–9 fashions 47 opinion leadership 47–8 role of entrepreneur 45–6, 48–9 financial 14–15, 33, 52, 76, 306 concept of 14 definition of 244–5 liquidity 68–9 planned economies 39 Cummings, Peter 229 Daniels v Anderson 228 Dean, Graeme 296 debt 137–9, 291, 321 farm mortgage 28 government 21 long-term 65 obligations 29 to equity ratio 138 deflation waves of 28 Delaware court system 132, 134, 136–7, 139 Court of Chancery 121–2, 127, 136, 143 Supreme Court 128, 138 Delaware General Corporation Law (1986) 134–5, 140 demand deposits payment of interest on 23–4 Diamond, Douglas W 19 Dingley, Nelson 248 Direct Line 222 disaster management 306–9 Disaster Management Cycle (DMC) 8, 306–8, 311, 323 apportioning blame 315–16 disaster unfolds 314, 320 mitigation/regulatory change 311–12, 317–18, 322 rescue and relief 314–15, 320–21 sensemaking/decision-making 313–14, 319–20 triggering event 313 variants of 309–10 warnings 312–13, 318–19 Disraeli, Benjamin 177 dotcom bubble (2000) 36–7, 318 Duer, William investment pool organized by 21–2 Dun, John 105 Dybvig, Philip H 19 East India Company 61 stock of 61–2 economic recession 14 Eichengreen, Barry 29 332 Complexity and crisis in the financial system Ellerman, John 200–201 England & South Wales District Bank 176 Enron Scandal (2001) 219, 276 entrepreneurship 3, 49, 57, 215–16 role in economic theory of crises 45–6, 48–9 role of risk in 216 European Central Bank (ECB) 294, 318, 320–22 European Economic Community (EEC) Banking Coordination Directive 110 European Union (EU) 112, 293, 296, 318 extraordinary general meetings (EGMs) 200 financial reporting 287–9, 297–300 fair value accounting (FVA) 7–8, 288, 293–7, 300 mark-to-market (MTM) 288, 295–6, 300 of hidden reserves 288–90, 292 ‘Reserves for General Banking Risks’ 297 Financial Conduct Authority (FCA) 179, 278 Financial Reporting Council (FRC) 220 findings of 299 Financial Services Authority (FSA) 73–4, 179, 229, 263, 278 handbook of 229 legislative objectives of 265 ARROW model 265–7, 277–8 Finland 321 First Active 222 First Bank of the United States 247 First World War (1914–18) 108, 178, 184, 312 economic impact of 29, 69, 74–6, 105, 249, 289 Treaty of Versailles (1919) 29, 315 Fitzgerald, John Attorney general for Ireland 167–8 Fortis role in attempted acquisition of ABN AMRO (2007) 222 Foss v Harbottle (1843) 185, 198 France 168, 316 Banque de France 247 gold reserves of 313 Paris 199 French Revolutionary Wars (1792– 1802) 65, 67 Friedman, Milton 26, 249 Fulton, Sir Forrest 177 Galleon Group 276 Geithner, Timothy President of New York Federal Reserve 31 General Motors 129 Generally Agreed Accounting Principles (GAAP) 293–4 Germany 29, 312, 314, 317 bonds issued by 28–9 Gisborne, Thomas 165 Global Financial Crisis (GFC)(2007–9) 1–3, 6–8, 14–15, 36, 60, 74, 183–4, 198, 202, 214, 220–21, 230, 233–4, 243, 247, 261–6, 271, 274–5, 278–80, 306, 317–18, 320–23 acquisitions/bailouts during 221–2 role of shadow banks in 30–31 role of universal banks in 31 US Subprime Mortgage Crisis 29–30, 244 globalization 31, 270 gold 65–6, 86, 101, 252, 312, 315–16 convertibility of 312–14 Gold Bloc 316, 322 Gold Exchange Standard 312 Gold Standard 247, 311–12, 314–15, 320, 323 French return to 312 UK departure from 70, 316 Goldman Sachs 321 Goodwin, Fred 222–3 governance 195, 203 corporate 133, 196, 198, 218, 233–4 quality 201–2 Graham v Allis-Chalmers Mfg Co (1963) 5, 121, 127–8, 132, 135 use of Briggs v Spaulding in (1891) 129 Index ­333 Great Depression (1929–33) 28, 36–7, 173, 245, 249–51, 306, 311, 314 bank failure during 28, 254 deflation waves during 28 see also Wall Street Crash Greece financial bailout of 321 Greene Company Law Amendment Committee (1925) 289 Greenspan, Alan 256 Chairman of Federal Reserve 216, 318–19 Group of Twenty (G20) 296 Haber, Stephen H 19 Fragile by Design (2014) 60 Haldane, Andrew Chief Economist of Bank of England 31, 269, 296 Halifax 151, 272 Hall, Sir Charles 177 Hamilton, Alexander 13, 21–2, 247 US Treasury Secretary 21 Hampel Report (1998) 219 HBOS 6, 227–8, 320 acquired by Lloyds Banking Group 221 bailout of 320 formation of (2001) 224, 272 risk management failure at 224–6, 233–4, 321 Hester, Stephen 223 Higgs Report (2003) 219 Hill & Sons of West Smithfield 93 Hoover, Herbert 315–16 Hornby, Andy 224 HSBC 102, 318 Hudson, George 56 Hurricane Katrina (2005) 308 illiquidity 25 In Re Barings plc and others (No.5) 228 In re Caremark International (1996) 5, 121, 132–5, 141, 143–4, 227 analysis of 135–6 influence of CAPM in 140 risk management failure focus of 226–7 In re Citigroup Inc Derivative Litigation (2009) 121, 134, 140, 143–4 In re Walt Disney Co Derivative Litigation (2006) 140 Independent Commission on Banking (ICB) structural reforms proposed by 112–13 ING 96 initial public offering (IPOs) 184, 191, 193–5, 197, 200–201 innovation 36–7, 40, 45 overconfidence 36–7 radical 37 Innovation-Complexity hypothesis 3, 15, 17, 28 adverse selection issues 18 concept of 14 tight coupling issues 17–18 insolvency 38 Institute of Chartered Accountants of England and Wales (ICAEW) 219 Taxation and Financial Relations Committee 289 interest rates 55 International Accounting Standards Board (IASB) International Financial Reporting Standards (IFRS) 293, 296 IFRS Financial Instruments 297 requirements for FVA 294 International Financial Conference (1920) 312 International Monetary Fund (IMF) 17 Italy 287 financial bailout of 321 L’Aquila earthquake (2009) 310 J & P Coats 194 Jackson, Andrew vetoing of recharting of Second Bank of United States (1832) 247 Japan 184, 292, 318 Jay Cooke & Co collapse of (1873) 23–4 334 Complexity and crisis in the financial system Jedwab v MGM Grand Hotels, Inc (1986) 139 Jenkins Committee on Company Law 290 Report 290 Jersey Joint-stock Bank collapse of (1873) 173–4 Jersey Mercantile Union collapse of (1873) 173 JMB and Barings failure of (1982) 111 Johnson Matthey Bankers (JMB) 102 failure of (1984) 292 joint-stock banks 94, 101, 104, 113, 171 collapses 173–6 development of 164–8 liability 169 Joint-stock Discount Company 171 Jorda, O 244 Joy v North (1982) 140 J.P Morgan 193, 200 acquisition of Bear Sterns 221 intervention in Panics (1895/1906) 26, 28, 252–5, 257 Katz v Oak Industries, Inc (1986) 138 Ketley, Richard founder of BSA 149 Kindersley, Vice Chancellor Richard 171 Kindleberger, Charles P 18 financial instability hypothesis (FIH) 309–10 King, Mervyn Governor of Bank of England 269 Knickerbocker Trust suspension of (1906) 27, 252–3, 257 labour 245 division of 52–3 international 52 Lancaster (UK) 198 Lawson, Sir William 291 Le Bailly, Joshua arrest of 173–4 Leach, Ronald 291 Leeds & Holbeck Building Society 159 Leeds Permanent Building Society 151 Lehman Brothers bankruptcy of (2008) 257, 319 Linter, John Capital Asset Pricing Model (CAPM) 139–40 liquidation 18, 199–200 liquidity 62, 319 crisis 68–9 crunch 30 Litwin v Allen (1940) 131–2 Liverpool (UK) 198 Lloyds Banking Group 102 acquisition of HBOS 221 branches operated by 68 loans 23, 25, 27, 37, 39, 72, 86 call 24 home 141 recalling of 62 securitization of 64–5 short-term 68 subprime 30 underpinning of 19 London 36, 61–4, 67–8, 70, 93, 98, 102, 104, 107, 109, 152, 191, 198–9, 319 see also City of London London Clearing House 68 London & Easter Banking Corporation collapse of (1857) 168 London & North Western Railway (LNWR) 187 London & Westminster Bank 166 London Discount Market Association 110 London Interbank Offered Rate (LIBOR) Rigging Scandal (2014) 79 London Stock Exchange (LSE) 71, 73, 158, 185, 193–4, 202 deregulation of (1986) 73 Listing Committee 193–4, 196 Luxembourg 111 MacDonald, Ramsay 314 managerialism 129–30, 132 Markowitz, Harry portfolio theory 139 Marylebone Joint-stock Bank 166 Index ­335 Martin, William McChesney Chairman of Federal Reserve 254 McKillop, Tom 223 McKinley, William 249–50 Mercantile Credit 107 Merrill Lynch acquired by Bank of America 221 Mexico 318 government of 36 Midland Bank 102, 156 branches operated by 68 contingent fund of 289 Mingay & Field 93 Mingay & Nott failure of (1810) 93 Minsky, Hyman 323 financial instability hypothesis (FIH) 309 Missouri Pacific 131 Moncreiff, James 175 Moore, Paul 225 Moore and Schley 26 mortgage crisis (1972) 36 Morgan, Pierpont ‘J.P.’ 252 Napoleonic Wars (1803–15) 65–7, 98 Battle of Waterloo (1815) 101 National Bureau of Economic Research 244 National Cordage bankruptcy of (1893) 24, 26 National Crime Agency Economic Crime Command 179 National Giro 102 National Provincial Bank 102 merger with Westminster Bank (1968) 96 Nationwide 151, 160 NatWest 156, 222 formation of (1968) 96 Neave, Sheffield Governor of Bank of England 272 Netherlands 61 Amsterdam 61 New York City 23–4, 26–7, 319 New York Clearing House Association 26, 28 Clearing House Loan Certificates 23 New York court system Supreme Court 131 New York Stock Exchange (NYSE) 23, 26, 191, 193 Newmarch, William 105 Norman, Montagu Chair of CLCB sub-committee 108 Northern & Central Bank of England 165–6, 168 Northern Pacific Railroad attempted underwriting of bonds of (1873) 23 Northern Rock 222–3, 233–4, 262–3 collapse of (2007) 112, 159, 221, 263–71, 273, 319 growth of 263 nationalisation of (2008) 6, 74, 261, 264, 268 shareholders of 264 Norwich & Norfolk Bank failure of 104–5 Oak Industries 138 Oriental Commercial Bank 171 Overend & Gurney 97, 171 collapse of (1866) 36, 56, 69, 172, 176, 269, 271, 273–4 conversion to joint-stock company (1865) 69 Palmerston, Lord 167, 272 panic concept of 14, 245 Parr’s Bank personnel of 105 Paul, Sir John Dean 167 Pecora, Ferdinand Pecora Report 316 Peel, Sir Robert 164 Penn Central collapse of 133 Perrow, Charles ‘normal accident’ theory of 18 Philadelphia & Reading Railroad bankruptcy of (1893) 24 Portugal 320 Post Office Savings Bank 152 Pressnell, L.S 102–3 Prince, Charles CEO of Citigroup 142 336 Complexity and crisis in the financial system Radcliffe Report (1959) 107, 109, 112 real asset shocks 19 Registrar of Friendly Societies 150, 154 Republic of Ireland 222 financial bailout of 321 Easter Uprising (1916) 321–2 Republican Party 248–9 Revolutionary War see American Revolutionary War Rice, Thomas Spring Chancellor of the Exchequer 165 risk 265, 270–71, 275–6, 297 concept of 215 relationship with uncertainty 215–16 role in entrepreneurship 216 system-wide 277–80 risk management 214, 223, 233 failures 221–5, 227–8, 233–4 legislation 225–6 market for corporate control 217–18 potential improvement of 229–32 role of board in 216–17 systems 33 Roosevelt, Franklin D New Deal 249–51, 316–17 Royal Bank of Scotland (RBS) 102, 218, 223, 226–8 bailout of 320 risk management failure of 222–4, 270, 321 role in attempted acquisition of ABN AMRO (2007) 222–3, 230, 298 Shareholder Action Group 179 Royal British Bank proceedings brought against (1857) 169–71, 274, 276 Royal Mail Group Case (1931) 289 Russian Federation 318 San Francisco Earthquake (1906) 26 Santander role in attempted acquisition of ABN AMRO (2007) 222 Schumpeter, Joseph 33 Schuster, Sir Felix Chairman of CLCB 108 Schwartz, Anna 26, 249 Second Bank of the United States 247 Second World War (1939–45) 256, 291, 313 belligerents of 28 economic impact of 70–71, 73 securities long-term debt 138 market 62 residential mortgage-backed (RMBS) 221 shadow banks 76 hedge funds 30 investment banks 30 role in Global Financial Crisis (2007–9) 30–31 special-purpose vehicles 30 shareholders 184–6, 195, 198–9, 202–3, 218, 222, 228–9, 264 legal protection of 186, 189–92 liability of 125 risk 140 tiered voting 188, 196, 202–4 Sharpe, William Capital Asset Pricing Model (CAPM) 139–40 Simons v Cogan (1988) 138 Sloan, Alfred 129 Smith, Thomas Cusack Master of the Rolls 167 Smith Report (2003) 219 Smith v Van Gorkom 228–9 South Africa Johannesburg 199 South Sea Bubble (1720) 36, 61 South Sea Company 61 stock of 62 Spain 112, 287 financial bailout of 320–21 Madrid 199 speculation stock market 56 Stone v Ritter (2006) 140–41, 143–4 Strahan, Paul & Bates 167–8 trial of (1855) 274, 276 Stresemann, Gustav German Foreign Minister 312 Switzerland Davos 277, 279 system dynamics application in study of financial markets 17 Index ­337 Taleb, Nassim N 20 Thornton, Henry 103 tort law 121 duty of care 122–5, 135–6, 140–41 negligence 124, 130–31 transparency transparency-fragility 287–8 transparency-stability 287 trust companies role in Panic (1907) 27 Trustee Savings Bank (TSB) 102, 152 Tucker, Paul Deputy Governor of Bank of England 269 Tulip Mania Turnbull Report (1999) 219 Turner, Lord 268–9 Chairman of FSA 268 Turner Review 232 proposals of 296 Tyrie, Andrew 276–7 Tyrie Commission proposals made by 232–3 UK Railway Mania 54–6 collapse of (1846) 55 uncertainty 3, 14, 17, 23, 31, 93, 172, 214 concept of 215 relationship with risk 215–16 unemployment 36 United Dominions Trust (UDT) 107, 110 United Dominions Trust v Kirkwood (1966) 87 United Kingdom (UK) 2, 4, 40–41, 52–3, 149, 151, 160, 168, 184–5, 192, 221, 227, 261–3, 266, 317, 320, 322 Bank Charter Act (1844) 67–8, 272 Banking Act (1979) 88, 90–92, 109–10, 157 Banking Act (1987) 102, 298 banking population of 85–91, 94–8, 100, 102–5, 107–13 discrepancies in statistics 105–7 Schedule list 110 banking sector of 4, 60, 68–9, 72–3, 75, 85–6, 92–3, 109, 214, 220, 287–8, 290 branch 89–90 commercial 88 crisis (1973–4) 292 joint-stock 94, 101, 104, 113, 164–8, 171 Panic (1825) 90 Banking (Special Provisions) Act (2008) 264–5 Board of Trade 187, 290 Building Societies Acts (1874/1894/1 939/1960/1962/1986) 73, 111–12, 152, 154–7 Capital Issues Committee 291 Companies Act (1844) 187 Companies Act (1879) 101, 106 Companies Act (1892) 192 Companies Act (1900) 192, 197 Companies Act (1912) 192 Companies Act (1947) 289 Companies Act (1948) 109, 185–7 Companies Act (1967) 110 Companies Act (2006) 233 Companies Clauses Consolidation Act (CCCA) (1845) 6, 186–91, 194–8, 203 clauses of 188 shareholder protections 190–92 Corporate Governance Code (2014) 220 corporate legislation in 184 criminal legislation in 164–6, 169 Crown Office and Procurator Fiscal Service 179 Department of Trade 109 Director of Public Prosecutions (DPP) 177 Exchange Control Act (1947) 109 Finance Act (1914) 108 Finance Act (1915) 108 financial sector of 5–8, 60–61, 64, 66–72, 74, 76–7, 161 Financial Services (Banking Reform) Act (2013) 178 Financial Services and Markets Act (2000) 179, 229 government of 60–61, 70–73, 195, 222, 233 338 Complexity and crisis in the financial system House of Commons 157 Secret Committee of the Commons on Joint-stock Banks (1836) 104 Inland Revenue 108 Joint-stock Banks Act (1844) 166 Larceny Act (1827) 276 Larceny Act (1861) 175, 178 Law Commissions 226 Moneylenders Act (1900–27) 110 Parliament 87, 113 Commission on Banking Standards 178, 231, 277 Punishment of Frauds Act (1857) 169 Serious Fraud Office (SFO) 179 Treasury 263, 266–71, 273, 290 United States of America (USA) 2–4, 55, 184, 221, 226–7, 267–8, 292, 317, 320, 322 American Recovery and Reinvestment Act (2009) 257 Anti-Referral Payments Law 134 Bank Act (1935) 127 Banking Act (1933) 127, 317–18 banking sector of 13–14, 20–21, 74–5, 202 Panic (1792) 20–22 Panic (1873) 22–4 Panic (1893) 24–6, 248, 252 Panic (1907) 26–7, 252, 254–5 Bland-Allison Act (1873) 25 Commodity Futures Trading Commission 255 Congress 21, 25, 142–3, 200 Constitution of 21 corporate legislation in 5, 192 Dingley Tariff Act (1897) 250, 256 economy of 22–3, 28, 127, 243, 246, 251–2, 254–7, 314 Federal Bank Secrecy Act 141 Federal Deposit Insurance Corporation 255 Federal Emergency Management Agency 307 Federal Housing Finance Agency 255 Federal Reserve 15, 17, 29–30, 76, 216, 243, 249, 252–8, 307, 312–13, 318–20 Financial Accounting Standards Board (FASB) requirements for FVA 294 Financial Crisis Inquiry Commission 30 Report of (2011) 321 Financial Institutions Reform, Recovery, and Enforcement Act 142–3 financial sector of 5, 8, 13, 77 government of 8, 21, 23, 25, 243, 247–8, 255–6 McKinley Tariff Act 25 National Bank Act (1864) 125 National Governors Association 307 Office of the Controller of the Currency 255 Reciprocal Trade Act (1934) 250 Sarbanes–Oxley Act (2002) 219 Securities and Exchange Commission (SEC) 255 Sherman Silver Purchase Act (1890) 25 Smoot–Hawley Tariff Act (1930) 249–50, 256 Supreme Court 123, 143 Treasury Department 252–3, 320 cash reserves of 27 gold reserves of 25–6 universal banks role in Global Financial Crisis (2007–9) 31 Vienna Stock Exchange Crash of (1873) 23 Volcker, Paul Chairman of Federal Reserve 255 W.&J Biggerstaff 93 Walker Review 220, 230–34 proposals of 297 Wall Street Crash (1929) 1, 36, 70, 75, 245, 252–3, 313, 315–16 see also Great Depression Waring, Lord Samuel 200 Waring & Gillow 198 Waring-White Building Company 199 Washington DC 25, 219 Weimar Republic 315 West of England Bank 178 Westminster Bank 102 merger with National Provincial Bank (1968) 96 Whig Party 165 Williams, Williams, Burgess & Williams recapitalization of 90 Index ­339 Williams Deacon 90 Woolwich Abbey National 151 World Bank 17, 262, 270 World Economic Conference (1933) 316 World Economic Forum 277, 279 Yorkshire Bank 102, 159 ... P and S Kapadia (201 0), ‘Contagion in Financial Networks’, Proceedings Financial innovation and the consequences of complexity ­35 of the Royal Society A: Mathematical, Physical and Engineering... predominantly on the historical roots of the crisis of 2007–8 (and the evolution of the US and UK financial systems more generally), the focus in the third and final Introduction ­7 section of this... government (instruments); the creation of a trading market for US bonds (markets); and the founding of the Bank of the United States (institution) With the close of the Revolutionary War (178 7) and the