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Bangor academics attract grant from the British Academy

The unintended consequences of bank regulatory enforcement actions will come under scrutiny in a new study by Bangor Business School. Dr Danny McGowan and Professor Klaus Schaeck have been awarded a £10,000 British Academy grant to investigate whether regulation that forces banks to clean up their act has unintended consequences on consumers and firms. 

In an interview, Dr McGowan stated that “During the recent financial crisis governments and regulators took unprecedented steps to force banks to clean up their balance sheets. The most extreme example was the nationalisation of Northern Rock but the Lloyds-HBOS forced merger was another notable example”.  Although these interventions were designed to restore stability in banks that had become overly exposed to the subprime mortgage market, a consequence was that the banks stopped lending to consumers and entrepreneurs.

In their research, the Bangor academics will address whether the side effects of bank regulation include contractions in the rate of economic growth and a reduction in the level of entrepreneurship.  Consumers and firms often lack sufficient funds of their own and are therefore highly dependent on banks to provide investment and start-up finance.  Studying this link is important as it poses important questions for policy makers: by taking steps to save a bank, they may actually harm other sectors of the economy.  A key question the research addresses is to understand how large these effects are and whether they persist through time.

Publication date: 11 October 2012