TAILIEUCHUNG - Internet Banking and the question of Bank Run: lesson from the Northern Rock Bank case

Diaspora investors tend to have different perceptions of risk than non-diaspora investors. Given their homeland connections, diaspora members may have better information about investment opportunities in their countries of origin and are less sensitive to exchange-rate risks than other investors, because they have domestic-currency obligations in their country of origin such as support payments to family members or running costs of domestic businesses, mortgages, or returns to domestic share-holders. They also may have a different time horizon. While most investors in emerging markets have a fairly short timeframe for profit expectations, many diaspora investors are willing to capture return. | Journal of Internet Banking and Commerce An open access Internet journal http www. arraydev. com commerce jibc Journal of Internet Banking and Commerce December 2009 vol. 14 http yde v. com commerce jibc Internet Banking and the question of Bank Run lesson from the Northern Rock Bank case Nathalie Janson PhD Associate Professor Rouen Business School Normandy France 1 rue du Maréchal Juin BP 215 76825 Mont Saint Aignan Cedex France Email njn@rouenbs. fr Prof. Nathalie Janson is an Associate Professor of Economics and Finance at Rouen Business School. Her areas of interest are the economics of banking regulation and the Theory of Financial Intermediation Abstract The subprime crisis triggered a series of bankruptcies and bank runs at a level never experienced since the Great Depression. The banking environment radically changed since the 1930 s in particular the development of information technology decreases considerably the cost of information. Furthermore internet banking increases severely the speed at which the demand for withdrawals are addressed to troubled banks. In the past demand for withdrawals could be slow down by fact that depositors had to physically queue and by the existence of opening hours of banks branches. Given these new circumstances a liquidity shortage may have an even more severe consequence on a bank since the delay between the bad news and the bank run can shorten dramatically. Indeed the Northern Rock Bank case in Great Britain illustrates that situation where a bank unable to borrow from its peers in the interbank market is within few hours ran by its depositors. The aim of the paper is to analyze the consequences of the major instability introduced by internet banking on the bank s ability to manage a liquidity crisis and an opportunity to discuss further the so-called endemic instability of the fractional reserve banking system. Keywords bank run - bank stability - government-sponsored insurance scheme -internet banking .

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