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Current global banking crisis was predicted by 1993 academic study

Published: 
30 September 2008

As talks continue in the United States over a $700bn rescue package to bail out the country's beleaguered financial sector, the current international turmoil in banking was accurately predicted some fifteen years ago in a study by an eminent Southampton economist and lawyer.

In his book 'International banking deregulation: the great banking experiment' published in 1993, Professor Richard Dale, Emeritus Professor of International Banking in the University of Southampton's School of Management, considered the possible consequences of banks' increasing involvement in securities markets world-wide, particularly in the light of the US banking collapse of 1929.

This detailed study, based on historical evidence as well as legal and economic analysis, concluded that, by permitting banks to engage freely in securities markets, policy-makers were engaging in a vast banking experiment whose outcome would be "increasing potential for a self-feeding and large-scale crisis engulfing both banks and securities markets internationally".

Professor Dale specifically warned against repeal of the US Glass-Steagall Act that separated banking from securities business: "The Act was repealed in 1999 and eight years later the banking industry is facing a meltdown due to its risk exposures in securities markets," he comments.

"As far as I am aware, this is the only serious academic study that anticipated the current financial disaster in the context of a fatally flawed financial market structure," adds Professor Dale.

Previously an executive at N M Rothschild and Sons, a Rockefeller International Relations Fellow at the Brookings Institution in Washington DC, and a Senior Houblon Norman Fellow at the Bank of England, Professor Dale has also testified before US Congressional Committees on financial regulatory issues.

Notes for editors

  • The University of Southampton's School of Management offers a wide range of undergraduate and postgraduate degrees in Accounting, Banking, Corporate Risk, Finance, Information Systems, Management, Management Sciences and Risk Management. In October 2000 the national Quality Assurance Agency graded the School's teaching as 'excellent'. The Association of MBAs has accredited Southampton's MBA and the School's PhD programme has been awarded mode 'A' recognition by the Economic and Social Research Council (ESRC). The School now has over 800 students, representing over 30 countries. Research specialisms include centres for Risk; Accounting, Accountability and Governance; Narrative Studies; Operational Research, Management Science & Information Systems and Higher Education Management and Policy. The University's Institute for Entrepreneurship is also part of the School.

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