Essay About Effects Of The Bank Run And Management Of Northern Rock

The Bank Should Enhance the Consciousness of Safety
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Recommendations must be raised to decrease or avoid the effects of the bank run. Firstly, the bank should enhance the consciousness of safety,and construct the warning plan system, since it is always better to check erroneous ideas at the outset. If the management of Northern Rock tried to prevent the problem of liquidity shortage and took some efficient actions, there might not be a run on it. To help minimize and even avoid a crisis, collecting, analysing and predicting information in advance will be necessary. Secondly, the government should strengthen its regulatory regime and improve the structure of financial supervision, separating the responsibility for systemic stability and lender-of-last-resort. In addition, it should establish a special bankruptcy regime for banks as well as a fundamental flaw in the deposit protection scheme. All these improvements will enhance the banks ability to resist risk. Thirdly, the bank should strengthen the deposit management as well as optimize the structure of debt. To support the long-term loans with a huge amount of short-term deposits will not reach a balance, so it is likely to have a risk. In order to control the risk, banks should arrange the proportion of assets and liabilities reasonably. Finally, it is also important for the bank to control its risk preference and increase the customers confidence. It is clearly that all the banks would like to gain profits, and there is a close link between high risks and huge benefits. Banks should make money within the control of risks, and guarantee the property of citizens as well.