An ideal regulatory model for dealing with retail financial institution runs and failures
| DOI | https://doi.org/10.1108/eb025052 |
| Published date | 01 April 2000 |
| Pages | 309-325 |
| Date | 01 April 2000 |
| Author | R.B. Lambert,A. Simon |
| Subject Matter | Accounting & finance |
An ideal regulatory model for dealing with
retail financial institution runs and failures
R. B. Lambert* and A. Simon**
Received: 4th September, 2000
*903/102 Wells Street, Southbank, VIC, 3006, Australia; tel: +61 3 9696 7567; fax: +61 3 9696 2765;
e-mail: rbfclambert@bigpond.com.au
"Department of Management, Faculty of Business & Economics, Monash University, PO Box 197,
Caulfield East, VIC, 3146, Australia; tel: +61 3 9903 2058; fax: +61 3 9903 2718; e-mail:
Alan.Simon@BusEco.monash.edu.au
Journal of Financial Regulation and Compliance Volume 8 Number 4
Rod Lambert has worked in banking for
over 20 years, including six years in the
executive of an Australian regional bank
which survived a severe run in 1990. He
consults to financial institutions in the
areas of management, information technol-
ogy and payment systems.
Alan Simon is an Associate Professor in
the Department of Management, Monash
University. He has a diverse background
in industry and has been in academia for
over 15 years. He is the supervisor of Rod
Lambert's PhD.
ABSTRACT
This paper presents an integrated regulatory
model to protect depositors in the event of a
retail financial institution run or failure. In
Australia, many of the factors included in this
model are either not in existence, or if in exis-
tence have not been fully implemented. A
review of regulatory arrangements for retail
financial institutions in Australia is warranted
in the light of
these
deficiencies.
INTRODUCTION
The research from which these models was
drawn identified major deficiencies in the
Australian regulatory model for handling
runs and failures.1 In particular, it high-
lighted the appalling social costs of inade-
quate protection for retail depositors,2
where 'retail depositors' is defined to
include depositors drawn from the general
public, not institutional depositors such as
commercial enterprises or corporations.
This paper presents an 'ideal' regulatory
environment to address these problems.
The scope is restricted to those regulatory
issues which have direct relevance to runs
and failures, and to a depositor perspective
of this regulatory environment.
APPROACH
The research was conducted in two stages.
The initial formative research developed an
'ideal' regulatory model for managing runs
and failures using (i) the historic record of
runs and failures in Australia from the
period 1817—1986, drawing on 134
instances of runs and/or failures, (ii) the lit-
erature of financial institution regulation
over the same period, and (iii) the literature
of collective behaviour.
While confirmation of the 'ideal' regula-
tory model for managing a run was not a
primary objective of the research,3 subse-
quent research did validate many aspects of
the ideal model using (i) the most recent
outburst of runs in Australia in 1987-1992,
drawing on data from another 34 incidents
Page 309
Journal of Financial Regulation
and Compliance, Vol. 8, No. 4,
2000,
pp. 309-325
Henry Stewart Publications,
1358-1988
An ideal regulatory model for dealing with retail financial institution runs and failures
of runs and/or failures, (ii) questionnaires
which were sent to 6,466 depositors
affected by this crisis, from which 659 valid
responses were received, and (iii) content
analysis of the largest circulation Victorian
newspaper for the same period.
The final outcome is shown in Figure 1.
Explanations of the factors within this
Page 310
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