Pagliari, Natali
(2012)
Why are we running? Political economy of bank runs and an analysis on the 2007-09 banking crisis in the United Kingdom.
PhD thesis, London School of Economics and Political Science.
Abstract
Of the massive amount of failures experienced in corporate history, not every failure or banking distress has triggered a panic among market actors, which were just deemed as ‘bad apples’. On the other hand, there have been numerous instances where the weaknesses in economic fundamentals led to the breakdown of cooperation among market actors in the shape of bank runs. This research proposes an alternative reading of bank runs by its emphasis on ideas, not to replace but rather to supplement the explanations put forward by the banking panics literature. It analyses bank runs from a political economy perspective and highlights the role played by ideas. While not discounting the significance of the material and institutional settings, it suggests the use of cognitive heuristics by depositors during decision-making under uncertainty. Accordingly, depositor awareness towards the safety nets in place and collective memory of the past institutional failures are suggested as the two reference points (in addition to fundamentals) for depositor expectations to converge towards. This theoretical argument is tested with the banking crisis of 2007-09 in the United Kingdom with the aim of uncovering the following research puzzle: Within the period under examination, out of the four bank failures, namely Northern Rock, Bradford and Bingley, Alliance and Leicester, HBOS, only the first two experienced bank runs (although different in type) which resulted in their failures. The research objective of this
thesis is, therefore, to explain and understand the motivations behind these depositor runs. With regards to research methods, empirical chapters apply a fully qualitative analysis –process tracing, within-case and cross-case analyses- and also utilise from counterfactuals in explaining depositor behaviour.
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