'Normal Insolvency Law Principles Have Not Been Applied to the Failure of Leading Banks and Institutions' - An Analysis with Reference to Recent Bank Failures in the UK

The recent global financial crisis almost brought the UK banking system to the brink of collapse, with Northern Rock being the first major UK bank to fall victim to it in September 2007, and raising major concerns for the stability of the financial market. The collapse of Northern Rock also brought to the forefront the realisation that major deposit-taking UK institutions could not be allowed to collapse for fear of being contagious to other banks and giving rise to further difficulties such as widespread bank runs. It was subsequent to the appreciation of the risk to the overall stability of the financial market that the collapse of Northern Rock carried, that it was rescued by the government by being brought into temporary public ownership, through the speedy passage of the Banking (Special Provisions) Act 2008. The intervention of the Government in order to rescue failing financial institutions such as Northern Rock, HBOS and RBS, subsequently led to a torrent of academic debates and authoritative consultation papers on the need for Government intervention, when the banking system was subject to pre-existing insolvency law provisions, which had not only been implemented in the context of investment banks in the past but had also proved adequate in doing so. This essay attempt to analyse the reasons for the alleged inapplicability of the ‘normal' insolvency law principles, in addition to briefly considering some of the causes of the crisis