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Contributions to Political Economy Advance Access originally published online on May 24, 2008
Contributions to Political Economy 2008 27(1):115-124; doi:10.1093/cpe/bzn007
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© The Author 2008. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved

Could the Crisis at Northern Rock have been Predicted?: An Evolutionary Approach1

Victoria Chick

University College London

Bankers have, from their beginning, made their money by taking risks and deciding how much risk they dare take, by expanding gradually, testing the water. Within this framework, the first risk is of illiquidity, but they must also ensure solvency. The steps taken by Northern Rock in developing their present ‘business plan’ are the same as those taken by most other banks, responding to the same incentives. It is the rapidity of its expansion that resulted in its downfall. The steps that have been taken also by other banks can be traced back to the beginning of banking and are predictable. Northern Rock's difficulties were predictable – and were predicted.


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