Epilogue: The Johnson Matthey Affair

Banking is a risky trade but regulating banks is riskier still. The bank supervisor has great responsibility and little power — at least, little power to control events in banking markets where innovation is frenetic, information is complex and actors are highly opportunistic. The amazing feature of modern banking is not that some banks fail but that so few do so. In recent years failure has indeed become commonplace. In the United States there were seventy-nine failures during 1984, the highest figure for nearly fifty years. Continental Illinois, one of the largest and most prestigious American institutions, was only saved from collapse by the intervention of Federal regulators. There was a systemic crisis in the whole Ohio state banking system and large numbers of farm banks were pushed to the brink of failure. The Federal Deposit Insurance Corporation estimates that around eight hundred American banks have prudential problems.1 In Germany in 1984 the central bank was forced to arrange a £150 million rescue of a leading institution and in September 1985 Canada saw its first bank failures since 1923.2