086

Overview of Banking Supervisory History:
Necessity and Implications of Study on
Global Banking Supervision regarding
the Bank of England and Basel Committee

佐藤 秀樹
Hideki SATO

h-sato@staff.kanazawa-u.ac.jp
h.sato3@lse.ac.uk
17 May 2024

Kanazawa University, Faculty of Economics and Management,
Discussion Paper Series, No. 86

Overview of Banking Supervisory History:
Necessity and Implications of Study on Global Banking Supervision
regarding the Bank of England and Basel Committee
Hideki Sato
Faculty of Economics and Management, Kanazawa University/
Financial Markets Group, London School of Economics
17th of May, 2024

Contents
1. Introduction: Research Questions and Background
2. Implications of Historical Viewpoints: The Three Angles
3. Methodology of Research
4. Basel Committee on Banking Supervision (BCBS): Establishment in December 1974
5. Substantive Implications of Euro-Dollar Market for London
6. Conclusion: UK Banking Act 1979 with Respect to Cross-Sector and Cross-Border
References

1. Introduction: Research Questions and Background
Modern financial markets vary day-to-day. We have obviously recognised that at the moment the US
and Swiss authorities faced their impending responses to the financial turbulence such as the US
small and medium sized regional banks, namely, Silicon Valley Bank (SVB), Signature Bank (SBNY), andFirst Republic Bank (FRB), and the Swiss second largest bank, or Credit Swiss. Although these crises
in 2023 were occurred approximately fifteen years after the Global Financial Crisis (GFC) expanded
broadly in 2008, there have been a plenty of uncertain elements for discussion in order to build
soundness of financial markets and financial systems across the world. This study considers
implications for historical research to grasp the quintessence of international cooperation, seeking
for global financial supervision, especially for coordination of banking supervision.

1Originally, policies of financial and banking supervision have been attributed to intrinsic
features of individual nation states. We are not able to deny that monetary policy aiming at pricestability should be traditionally the most important cornerstone in our central banking. However, it isa fact that prudential policy has been increasingly strengthening its position, aiming at financial
stability as a whole. The prudential regulatory policy has become the second indispensable pillar forthe central banking operations, as well as the monetary policy as the first one that we mentioned.
Monetary policy is generally attracted with extreme keen attentions from the market via ashort-term perspective, therefore, market participants watch every move that central banks make,which definitely change market sentiment. Statistics unveiled by central banks sometimes surprisethe market through a ‘gap’ of cognition between the estimated information and real results,
otherwise, they did not surprise the market participants due to being already considered bythemselves. Ultimately, the extent of impact for financial market relies on the anticipatedinformation’s accuracy.
On the other hand, prudential policy is generally based on mid- and longer-term
perspectives. The essence of prudential policy would stem from a “micro-prudence” which monitors
soundness of ‘individual’ financial institutions. By contrast, a “macro-prudence” monitors a ‘whole’
framework of financial system in order to prevent a ‘systemic risk’. It is apparently seen that themacro-prudence is more prioritised rather than the micro-prudence, especially aftermath of the GFC
in 2008. We are currently in a world where a contagion would occur and expand immediately andglobally, through a progress of globalisation and financial technology with an artificial intelligence(AI). It should be rational that macro-prudence is rising in terms of its significance in tandem with themutually interplaying of systemic risks beyond our borders in order to prevent them.
As additional discussion to micro- and macro-prudential policies, we need to cognise adistinction between national and global levels. As I mentioned, the field of financial regulation andsupervision has been placed initially in the national political level. However, a transnational politicalcooperation has been necessitated after a global systemic risk occurred in the middle of 1970s. In anutshell, it is the birth of the BCBS (Basel Committee on Banking Supervision). As we will lay out as
below, the BCBS was established in December 1974, and 2024 sees its 50th anniversary. Its history ofhalf a century is profound, and it embraces quite a few experiments of political cooperation by ausage of grand design and technical tools 1. This paper describes a fundamental research awarenessAs a comprehensive research achievement, we can see these publications: Goodhart, C. (2011).
The Basel Committee on Banking Supervision: A History of the Early Years 1974-1997, Cambridge:
Cambridge University Press; Wood, D. (2005). Governing Global Banking: The Basel Committee and21

of the origin of international banking supervision by the BCBS.
Table 1 shows the acronyms of this paper.
Table 1：Acronyms
Acronym

Nomenclature

AI

Artificial Intelligence

BAC

Banking Advisory Committee

BCBS

Basel Committee on Banking Supervision

BIS

Bank for International Settlements

BISA

Bank of International Settlements Archives

BOE

Bank of England

BOEA

Bank of England Archives

BOJ

Bank of Japan

CBRSP

CommitteeonBanking

Regulations

Supervisory Practices
CCC

Competition and Credit Control

DTI

Department of Trade and Industry

EA

Euro Area

EBA

European Banking Authority

EBU

European Banking Union

EC

European Community

EEC

European Economic Community

ESAs

European Single Authorities

EU

European Union

FSA (JP)

Financial Services Agency

FSB

Financial Stability Board

G10Group of Ten

GFC

Global Financial Crisis

HM Treasury

Her/His Majesty Treasury

IMF

International Monetary Fund

LoLR

Lender of Last Resort

RTS

Regulatory Technical Standards

SIs

Significant Institutions

the Politics of Financial Globalisation, Aldershot: Ashgate.
3

and

SNB

Swiss National Bank

SNS

Social Network Service

SRB

Single Resolution Board

SRF

Single Resolution Fund

SRM

Single Resolution Mechanism

SSB

Single Supervisory BoardTNAThe National Archives

2. Implication of Historical Research View: The Three Focal Points
What is the implication of history on global cooperation of banking supervision? What does it mean
the focus on history, not current status? Is it useful for adopting a long-term perspective, not a shortterm one, in order to prevent financial crises of onward plausible resemble crises and totally different
turbulence?

What is the difference or commonality of responses between current crises andhistorical ones which occurred in fifty years ago? It would be hard to discard the experiential
knowledge that we could acquire from global history. In order to utilise for present and future ourhuman beings’ wisdom by archival records through which we have a possibility to obtain, exploring
the origin of international harmonisation of banking supervision must imply for our future lives.
Prudential policy is a major political discipline what central banks and financial regulatory
authorities have as their mandates. However, it depends on nation states in any periods whose
governmental authorities have a responsibility for it, such as Ministry of Finance (Treasury) or
Ministry of Economy and Industry. For instance, in Japan the Ministry of Finance had kept a mandateof financial supervision prior to the separation of fiscal and supervisory policies as the establishment
of FSA (Financial Services Agency). As beforementioned, in general, central banking has two
responsibilities: first, it is price stability; secondly, it is financial stability. Prudential policy falls in thesecond aim as a vital tool. With respect to the background, an intrinsic banking system or, more
broadly, financial system of a nation state exists persistently in its policy-making process. It is mostly
impossible to unite these diversified systems beyond borders which reflect on each nation’s features.
Therefore, it has been struggled to hammer out how they wrapped up the characteristics of member
states’ banking systems which had been traditionally forged, and how they adjusted the conflicts ofinterests of them on banking regulation and supervision, and how they eventually construct afoundation of international standpoint. Consequently, they reached to proposals at the end ofstrenuous efforts with discussions. This process represents the BCBS’ fundamental role and its raisond’être.
4

Specifically, this study has a keen attention for the following three points.
The first point is that banking supervisory system and policy are intrinsically in the range ofeach nation state’s sovereignty. As we mentioned, the prudential policy embraces financial regulationand supervision.
Initially, regulation indicates a stipulation based on “rule”, which exemplified a fundamental
law, a detail law, or a more modest directive. These are composed of motherboard of regime design.
These are discussed and drafted, and ultimately are enacted through approvement of legislative
organisation such as respective parliaments. Naturally, they attribute to the sovereign right ofjurisdiction in the rule-making, therefore, it is not easy to converge them internationally. Legislation
is forged by a nation state’s jurisdiction.
On the other hand, supervision indicates a monitoring whether these rules are complied ornot. Even though a rule is enacted, it is not necessarily to be implemented by private banks orauthorities such as a central banks or financial supervisor. For instance, Basel III which was unveiledby the abovementioned BCBS aftermath the GFC has been checked by the BCBS to what extent it has
been put in place actually and monitored by on the differentiation of extent. The results are publishedby the usage of heatmap (matrix) in its report. For example, In Japan, banking sectors are watchedby the FSA’s inspections and BOJ’s on-site examinations. In a sense that to what extent private banks
comply the directions of supervisory authorities, supervisory policy is affiliated in the polity area
which has a plausibility of a “gap of recognition” between the authorities and private institutions.
The second point is on the methodology of international cooperation. The first point as we
mentioned is the diversity of banking regulation and supervision based on each original banking
system. The second point is supposed to be a viewpoint on what kinds of modus operandi we should
adopt for adjusting their diversity and forging a common foundation. An intrinsic right of eachmember state, or ‘sovereign’ is not definitely able to be restricted with uniformity. There exists a law
which each member state primarily has a mandate and its responsibility.
On the other hand, we are not able to deny the existence of uniformity of banking
regulation. In fact, in the European Union (EU), the European Banking Union (EBU) whose core is theEuro Area (EA) was proposed for the first time in June 2012 2. In practice, the Single Supervisory
A recent study of the EBU in Japanese, See: Sato, H. (2023). The Dynamics of Banking Supervision:
Advances in Europe and Global Challenges, Tokyo: Maruzen Publishing.
52

Mechanism (SSM) was established in November 2014. As a framework of the SSM, Single Supervisory
Board (SSB) was created within the European Central Bank (ECB) 3, and the SSB directly supervises
the 113 significant institutions (SIs) in the EA, as of January 2024 4. The headquarters of the SSB of
the ECB is located in Frankfurt. By contrast, the headquarters of the Single Resolution Board (SRB) in
the framework of the Single Resolution Mechanism (SRM) was located in Brussels. The SRM waslaunched in January 2015 and started as a full-fledged system in January 2016. The SRB mandates
the European internal resolution issues based on the uniformed benchmark by the usage of the Single
Resolution Fund (SRF). The SRB holds a legal conference regularly to discuss substantive agendas andpublishes the articles in an extremely insightful journal 5. As its foundation, the European Banking
Authority (EBA), launched in 2010 as one of the European Supervisory Authorities (ESAs), makes theSingle Rulebook and designs a single regulation system buttressed by the extremely detailed andmyriad of regulatory technical standards (RTS). In that sense, it is the practical example to form thetransnational banking regulations by adoption of “hard-law 6” which has a legal power of restriction 7.
Now, could we make single the regulatory framework among outsiders of the EU countries,
such as the United States, Canada, Switzerland and Japan? The short answer is no. Otherwise, howabout coordination and cooperation in order to make close to commonality? The institution which
purposes this aim is the BCBS as a global banking supervisory organisation as we mentioned. The
BCBS adopts a “soft-law” approach to banking regulation, not based by “hard-law” approach. In anutshell, it is a gentleman agreement, which has no legal-binding. If a member state could not comply
a soft-law regulation, the BCBS is not able to punish it with an enforcement. In that sense, it does nothave any stringent restrictions, however, it aims to construct a “de facto standard”. It means that itdelegates its supervisory framework on a peer pressure among the member states and a self-

Since the launching of the SSM in 2014, ten years will be passed in 2024. The speech by the Chairof the Supervisory Board was insightful, focused on the first decade of the EBU and future
perspective. See: Buch, C. (2024). “Financial integration in Europe: where do we stand after thebanking union’s first decade?”, speech at the “Globalisation: What’s Next?”, conference coorganised by the Banque de France, the Centre for Economic Policy Research, the World Bank andthe University of Surrey, Paris, 30 April.
4
European Central Bank/Banking Supervision. (2024). List of supervised entities, 1 January.
5
For instance, the latest SRB Legal Conference 2023 is informative to delve the resolution issues
into detail, such as the relations with the UK and cross-border resolution.
6
As recent research on the hard-law and soft-law in the banking supervisory field, see: Goodhart,
C. and Sato, H. (2024). “A Note on the Differences between European and International
Methodologies of Banking Regulation and Supervision”, CEPR (Centre for Economic Policy Research)
Discussion Paper Series, DP18840, 16 February.
7
The EBU was stemmed from the de Larosière Report, which was published in February 2009
aftermath of the GFC. As its background, there is an impending circumstance, or a reality which
necessitates a delink, or, in practice, an attenuation of the link of banking and sovereign crises.
63

regulation by themselves. We reckon that credence which is buttressed by an interrelation andmutual understanding is substantively important in the field of banking regulator and supervisory
policies.
Thirdly, it is that we could observe this global banking supervision via a viewpoint of a
specified country. We chose the United Kingdom 8. The UK played an indispensable role in the BCBS
at their early years as well as its original membership. Within the BCBS, the intrinsic British approachto banking regulation works well. In fact, George Blunden and Peter Cooke were key figures, whowere both from the Bank of England (BOE). They organised the Blunden Committee and Cooke
Committee respectively, and took initiatives of the international cooperation from the mid-1970s toover the course of 1980s. However, for the UK, the international coordination was not easy andsimple story. For the British stand, it had to be in tandem with European Economic Community (EEC),
which was a centrepiece of the European Community (EC), since its joining into the EC in 1973.
Therefore, the UK took a leadership in the international political cooperation, on the other hand, it
needed to be hand in hand with the EEC. Hence, the huge dilemma existed there. We need to clarify
how the UK and EEC conflicted towards banking supervision and how the UK had to keep a rightbalance between the EEC and BCBS. Then, as we described thus far, we could redeem that analytical
dynamics would be generated by pursuing the global political cooperation through a lens of a specificview, namely, the British standpoint.

3. Methodology of Research
Moving on, we introduce several research methodologies. Firstly, it is about an analytical method.
The arena of this study is affiliated in the field of financial history, history of central banks, central
banking theory, theory of international finance, and theory of financial regulation. This research uses
archival records exemplified by central banks’ archives and national archives, then we seek for thethem by analytics of these archives. Specifically, we would use the Bank of England Archives (BOEA)
in London, the UK National Archives (TNA) in Richmond, the Bank for International Settlements
Archive (BISA) in Basel, Switzerland. These archival document centres are essential reading locus
points for this study which deals with the 1970s and 1980s. These records are not only public archives
but also documents in ongoing preparation. Historiology might be progressive with disclosure in linewith passing time. We also use other archives such as the archives of Bank of Japan (BOJ) and Swiss
Gardener (1986) delineates the UK’s banking supervisory system at the time of mid-1980s as aconcurrent analysis. See: Gardener, E.P.M. (Ed.), (1986). UK Banking Supervision: Evolution, Practiceand Issues, London: Allen & Unwin.
78National Bank (SNB) archives.
The second point is restriction of targeting period. One thing has a cause and background,
and we could trace the background up to the origin. It has an analogy of operation of seeking an
origin of our human beings. We focus the target from 1972 to 1989 in terms of research on origin of
global banking supervision. Initially, the antecedence at the beginning of the 1970s prior to 1972,
comparing with the 1960s before it, might be interrelated with each other and be helpful for following
period by considering its pre-background. This study includes prerequisites at the beginning of the
1970s, prior to the establishment of the BCBS in 1974. Particularly, we lay out two points: (1)controlling the Euro-currency, and (2) Groupe de Contact, which consisted of six EEC member states.
It should be difference between the ramifications of the EEC and global organisation, in the obvisous
point whether the outsiders, especially the UK is included or not. The research is demanded to mullover what is the originated character of each state’s banking supervisory policy reflected by its
banking system, and what are the common and differentiated points of its individual criteria ofsupervision at the moment. What implications could we acquire to observe the quintessential points
during these 18 years? What is a focal fact which could imply for our modern world? These researchquestions would intertwine with current and future solutions.
As we mentioned, we would like to set up the future subjects for the sake of searching formodern global banking supervision focused from 1972 to 1989. The subjects will be through the twoviews as below: (1) exploring the origin of global banking supervision and its new development via
archival records, and (2) focusing the target period.

4. Basel Committee on Banking Supervision: The Establishment in December 1974
It is the Basel Committee on Banking Supervision (BCBS) that is a pivot to implement banking
supervision based on a global perspective, and to make a design for sound financial system and toput policies in place. The BCBS is under the Bank for International Settlements (BIS) 9 where central
banks gather and discuss monetary and financial issues. As the BIS is an assemblance of central banks’experts, the BCBS is also the same place, hence, it is different from the International Monetary Fund(IMF) in which each member state’s ministry of finance has a key responsibility. In other words, theThe BIS which was established in 1930, has a longer history than the IMF, that was launched in1944 by the Bretton Woods Conference. The motivation of the BIS’ creation was, however, German
reimbursement aftermath of the First World War, hence, it has a ramification interwoven withinternational relations and international politics.
89

BIS/BCBS is the place where assures its neutrality in order to discuss international financial agendas
through objective viewpoints, which is distinguished from each governmental standpoint, namely,
politics.
Nowadays, the Basel Committee of Banking Supervision is recognised for the BCBS,
however, from the establishment in December 1974 to the latter of 1980s, it had been known thename of Committee on Banking Regulations and Supervisory Practices (CBRSP). Initially, the Stirring
Committee on Euro-Currency Markets of the Group of Ten (G10) 10 was reckoned as an origin. In 1974,
West Germany’s Bankhaus Herstatt was collapsed and, so to speak, the “Herstatt risk” appeared
whose risks expanded as a cross-border basis. Therefore, the transnational cooperation wasnecessitated for prevention of systemic risk.
However, the banking system of each member state was quite different, hence, its
respective banking supervisory systems, aims, and choices of eyes were differentiated. The first
BCBS/CBRSP meeting was held in February 1975. We look into the document on 26th of September
1975, after half a year of the first meeting, named “Report to the Governors on the supervision ofbanks’ foreign establishments”11.
This report raised two large points, although it was written in the early years of the BCBS’establishment. First of all, there are three kinds of style for bank to establish a foreign branch, etc.
The first style is a branch, which is composed of an essential part of its parent bank. The second styleis a subsidiary, which is organised as a legal company in its host (business) country and a legallyindependent organisation from the control of its foreign parent bank. The third style is a joint venture,
which is organised as a legal company in its host (business) country and legally independent from thecontrol of its two or more numbers of parent banks. Most of these joint ventures are foreign owned
companies, and all of them are not necessary banks12.
The second large point is that there are three elements as follows. The first element isliquidity, the second element is solvency, and the third element is foreign exchange operations and

The member states of the G10 in an alphabetical order are twelve countries as below: Belgium,
Canada, France, Germany, Italy, Japan, Luxembourg, the Netherlands, Sweden, Switzerland, theUnited Kingdom, and the United States. Spain joined on 1st of February, 2001. See: Bank forInternational Settlements. (2001). History of the Basel Committee and its Membership, March.
11
Committee on Banking Regulations and Supervisory Practices. (1975). Report to the Governors
on the supervision of banks’ foreign establishments, BS/75/44e, Confidential, 26th September 1975.
12
Ibid., p. 1.
910

positions 13. The third one should be understood the transaction and the consequent “position”.
Particularly, we consider that the former two elements, namely, the liquidity and solvency
are the concepts of ultimate notions in the field of prudential policy. When it comes to current
financial crises, controlling of liquidity is one of the most important prudential regulatory policies interm of the following two points: (1) central bank’s frequent liquidity supply of foreign currency,
especially, the US dollar via the swap agreement, (2) central bank’s mandate to provide a special loan
as a function of the Lender of Last Resort (LoLR). In addition, solvency should be a vital key word
which shows the competence for payment onwards. The benchmark of solvency would be utilised
when they redeem a bank which is close to crisis or in a crisis, whether it is failing (facing to collapsed
but not collapsed yet) or failed (already collapsed). In that sense, the liquidity is supervised by amacro-prudential viewpoint and the solvency is controlled by a micro-prudential perspective. Bothof the supervision of liquidity and solvency are substantive issues in a period not only prior to a crisis
but also after a crisis as a resilience.
As for the third element abovementioned “foreign exchange operations and positions”,
reflects the change of environment spontaneously, after each member state transformed naturally
and consequently to floating exchange regime (Japan transformed in spring of 1973), aftermath ofthe collapse of the Bretton Woods. On the other hand, the floating arrangement provided a
promotion of active speculation 14 by a deliberating leaning of position and of more and moreprogress of derivative transactions motivated by risk hedge, in tandem with an instability for markets
that it brought. These movement related with the occurrence of hedge funds’ activities and theconsequent series of international currency crises in the 1990s.

5. Substantive Implications of Euro-Dollar Market for London
The point in which we need to recognise when it comes to designing of banking regulation andsupervision is that the UK embraces the City of London as an international eminent financial market.
In the framework of the international gold standard under which the UK adopted initially as its
domestic standard, the City of London was a locus point where British and foreign private banks
gathered and transacted financially, which was the indispensable place where private sectors raised

Ibid., p. 1.
Regarding the recent research on speculation including historical experiences, see: D’Alvia, D.
(2023). The Speculator of Financial Markets: How Financial Innovation and Supervision Made theModern World, Palgrave Macmillan.
10

13
14

funds and invested.
In the City of London in the late of the 1970s, the Euro-currency market which appeared
remarkably at the beginning of the 1970s, but originally generated in the 1950s and developed in the
1960s as the “third market”, had an advantage in terms of lux regulation and tax regime, where
private financial institutions transacted in denominated currencies except for the pound sterling as
the UK’s domestic currency15.
The London market, so to speak, as the euro-currency market, has been called “euro-dollar
market” as, in fact, the most important currency has been the US dollar. The genesis of the eurocurrency market was around in the latter of 1950s as we mentioned. By the Bank of England Archives,banks in London had taken deposits denominated in the US dollar aimed to provide with finance foroverseas trade in the US dollar, because of the restriction of UK pound transactions for external tradein the early period in 1957. In addition, the starting of convertibility of UK pound in 1958 became apowerful and new motivation for banks in London to accept deposits denominated in foreign
currencies and to lend denominated in them16.
As we can see thus far that the euro-dollar market had an advantage for the UK in order toactivate the domestic market and to pave the way for domestic financial institutions. On the other
hand, the concern for generation of inflation which could stem from an external factor certainly
existed. However, the transatlantic connection was substantively strong, especially, the British
finance tended to be affected by the trend of US commercial banks. It was not irrelevant for progressof London market as a euro-currency market with the US circumstances.
The Bank of England Archives as we citied delineated this background in the documents on
Wilson Committee which analysed in 1977. For instance, the US had faced the deficit of balance of
payments since 1959. Hence, traders who were outside the US acquired the large amount of US dollar
balance. In other words, they did not change the US dollar balance to the UK pound or their own
currencies, but kept the balance in the US dollar and held it outside the US as deposits. The expansionof euro-currency market was affected at the beginning of and mid-of 1960s by two factors: (1)As the research publication focused on euro-currency market, we can get valuable knowledge
and information from the following books: Johnston, R.B. (1983). The Economics of the EuroMarket: History, Theory and Policy, London and Basingstoke: Macmillan; Einzig, P. (1965). The EuroDollar System: Practice and Theory of International Interest Rates, Second Edition, London:
Macmillan.
16
The Bank of England Archives, 1A179/7. External Finance and the City, Secret, Draft, 14.7.1977,
pp. 6-7.
11
15

regulation of direct capital export from the US, and (2) restriction of interests of US dollar deposits in
the US under the Regulation Q. This promoted to shift from US domestic banking system to businessin the US dollar outside the US, and stimulated the activities of overseas branches and subsidiaries
of US banks. Remarkably, they penetrated in London and Caribbean area. The City of London was
benefited by the framework of international banking businesses and, in Caribbean area, theirauthorities supported these American banks’ activities, especially through the exemption of taxes 17.
As we mentioned, it was necessary for the City of London to promote the development offinancial institutions by the progress of financial markets, especially by the euro-dollar markets.
Therefore, the quintessential prowess was the US. Particularly, the American commercial banks’businesses were an interwoven spring board for the progress of the City of London.

6. Conclusion: UK Banking Act 1979 with Respect to Cross-Sector and Cross-BorderThus far, we considered implications and necessity for the analysis of banking supervision through alens of global and historical perspective. In terms of implications for modern world, it provided quite
a lot, even though the historical moment is, to some extent, different from the current status, thestudy contains indispensable points on how to regulate and supervise the banks/financial institutions
effectively based on a global aspect, when it comes to mulling over its meaning in a society
characterised as a market economy.
Although this study basically focuses on the supervisory system and policy for “banking”
via a historical approach, in fact, banking supervision relates with supervision of “financial markets”
which includes supervision of investment banks and securities companies, and with control of“insurance company”. Hence, we need to stabilise a wholistic financial system through a view of“cross-sector”, in order to deal with “cross-cutting issues”. This point falls in not only the status quoin 2024, such as the policy of FSB (Financial Stability Board), but also related with the viewpoints
which were discussed frequently in the Wilson Committee in the latter of 1970s, that this study
focuses on. To put it differently, the plenty of archives of the Wilson Committee in 1977 which the
Bank of England Archives held, shows that the target of supervision at the moment was not onlybanking sector, but also covered the whole financial markets. In addition, banking supervisory policy
was a part of British macroeconomic relations under the inflationary circumstances at the time18.
The Bank of England Archives. 1A179/7. Op. cit., p. 7.
For instance, the series of archival records held in the Bank of England Archives are as below:
Bank of England Archives. 1A179 Series. Wilson Committee.
12
17
18

Another standpoint on which we need to consider banking regulatory and supervisory
issues is an angle of “cross-border” under the floating exchange rate regime in line with globalisingworld. At the moment, in a course of the 1970s, the UK prudently and gradually had been dealing
with the enactment of Banking Act 1979. Traditionally, the UK had embraced its original modus
operandi of banking supervision, which were discretionary and weighting conversation withinstitutions and players in the financial markets 19. For instance, France, as an advanced economy,
enforced its first Banking Act in 1941, however, it was not enacted the Banking Act in Britain until
closed to forty years after, namely, in 1979. It was a sense of British banking supervision based on“Common Law” to generate approximately forty years for time differentiation. In 1979, for the firsttime, a banking act which was based on a legal statute was built in the UK. Especially, the two points
should be attended. First, the fragmented mandate of banking supervision among the HM Treasury,
Bank of England, and DTI (Department of Trade and Industry) was forced to converge on the
responsibility of the Bank of England “basically”. Secondary, the Banking Act 1979 put in place asystem of “deposit insurance”.
We need to review the time at least five to six years from 1979, in order to grasp thebackground of this substantive epoch-making phenomenon. In other words, the Second Banking
Crisis 20 which was occurred from 1973 to 1975 critically impacted on British financial market 21. This
was a crisis of fringe bank; it did not stem from a large or significant bank crisis. The prior to the crisis,
the CCC (Competition and Credit Control) policy 22 which was put place in 1971, induced an easing
As an authentic and official publication on historical research by the Bank of England, see: Capie,
F. (2010). The Bank of England: 1950s to 1979, Cambridge: Cambridge University Press. It deals with
monetary policy, exchange rate phenomenon, financial crises, and banking supervision based on acomprehensive approach from the 1950s to 1979 when the Banking Act was established. In thechapter 12 titled “Banking Supervision”, it delineates the process of the Banking Act 1979 via aplenty of the Bank of England’s archives. Beginning with the financial situation in the 1950s and1960s, it explores the Secondary Banking Crisis, the pressure from the EEC, legislation, andinternational cooperation for banking supervision which respectively relate to and imply for thisstudy.
20
As for the Second Banking Crisis, the documents on 17th of January 1978, namely, “The SelectCommittee on Nationalised Industries, Briefing Material”, delineated clearly its causes andcircumstances as well as the “lifeboat (which means a rescue)” of the Bank of England. See: Bank ofEngland Archives. 2A170/1. The Selected Committee on Nationalised Industries, Briefing Material,
17. 1. 1978.
21
In terms of research publications on the Secondary Banking Crisis, see: Reid, D. (1982. 2003). The
Secondary Banking Crisis, 1973-75: Its Causes and Course, First published by Macmillan, London andBasingstoke, Second published by Hindsight Books with an introduction by Kynaston, D.; Capie, F.
(2010). The Bank of England: 1950s to 1979, Cambridge: Cambridge University Press, Chapter 11,“The Secondary Banking Crisis”.
22With related to an analysis on the CCC, see: Capie, F. (2010). The Bank of England: 1950s to 1979,
13
19

and competitive environment for British financial markets, and consequently affected themnegatively. The crisis was caused by a fact that British had not had a systemic and efficient banking
supervisory regime based on a legal framework for its British intrinsic “two-tier” banking system.
Eventually, the Bank of England issued a rescue, or, “lifeboat”, by the lending of a large amount ofmoney. As we mentioned in a previous footnote, the Bank of England made a comprehensive
analytical report in January 1978. In this report, the Secondary Banking Crisis was classified into threephases: the first phase was from November 1973 to March 1974; the second phase was from March
1974 to December 1974; the third phase was after January 197523. The archive stated that originally,
as a prerequisite, the Bank of England, from a hundred years passed hitherto the moment, initiatedits pivotal mission of swift and clear measures among its various operations as a pioneer, andcooperated with other authorities in order to guard the British banking system 24.
The years of 2023 and 2024 are a period of punctuation as fifty years after the Secondary
Banking Crisis occurred. The commonality between the abovementioned US medium-sized banking
crisis in March 2023 and the Secondary Banking Crisis from 1973 to 1975 was a banking crisis which
was not redeemed stemming from a large or significant banks’ crisis. The crisis of 2023 differs fromthe Secondary Banking Crisis in terms of a “digital” bank run in a fact that an instrument such as SNS(Social Network Services) accelerated incrementally the speed of contagion; however, there is acommon point that these deposit-taking institutions suffered from each crisis. “Deposit” is ultimately
a quintessential source of our financial transactions.
On the other hand, at the time of the 1970s, we need to recognise that EEC (European
Economic Community) had prepared for its banking directive for the sake of enactment. The United
Kingdom joined the EEC in 1973; however, prior to the entry, the UK participated into the discussion
on EEC’s banking regulatory harmonisation in 1972. The joining of the EEC membership in 1973
meant that the UK had to relate directly not only with the formulation of EEC’s banking directives,
but also had to restrain from the legal jurisdiction of EC (European Community) based on a statuterule. In fact, the EEC First Banking Directive was enacted in 1977. This was a substantive motivation
for the UK to establish the first Banking Act in 1979, as a consequence of an external constraint fromcontinental European countries which was buttressed by an axis of Franco-German relationship.

Cambridge: Cambridge University Press, Chapter 9, “The Road to Competition and Credit Control”.
23
Bank of England Archives. 2A170/1. The Select Committee on Nationalised Industries, Briefing
Material, 17. 1. 1978.
24
Op.cit., “Why the Bank Became Involved”, Central bank’s function in defence of banking system,
p. 1.
14

The UK Banking Act was reviewed by the HM Treasury 25 in the course of the 1980s,
documented as the Review of Banking Act, and it was polished and updated for the Banking Act 1987.
On the other hand, EEC set up the Second Banking Directive in 1989, considering the change of theenvironmental situation of internal banking management. The promoter of European internal
coordination of banking regulation and supervision, was organised within the European Commission
at the period, which was coined as BAC (Banking Advisory Committee) 26.
As we mentioned, the both 1970s and 1980s 27 were substantive and salient backgroundfor the UK and BCBS, which took a role of global banking supervision. These periods were also placed
as the indispensable early years for modern global governance through a lens of banking supervision.

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