The Interaction Between Collective Memory and Policy Responses: 2007-09 Banking Crisis in the United Kingdom as a Case Study

In the light of the developments in financial markets since 2007, this paper mainly analyses the impact of policy responses on the varying values of change in depositor behaviour (dependent variable) during banking crises. It embraces a political economy point of view to investigate the reasons for the following binary values that the dependent variable takes: No bank runs (0) and bank run (1). The way that the economics literature analyses bank runs prioritises interest and/or institution-based explanations over ideational ones. Although expectation-formation is placed at the centre of this analysis, it is understood as a function of interests and/or the institutional environment. This paper fills the gap in the literature by its emphasis on ideas. Expectations are still under examination; but this time from a constructivist point of view. Within the same banking crisis period, this paper focuses on the interaction between collective memory (ideas) and policy responses (institutions) and their impact on the varying degrees of change in depositor behaviour. Against this background, it examines the recent banking crisis in the United Kingdom between 2007-09 where each individual banking failure is studied as the unit of analysis. Hence, this cross-time analysis within the same banking period provides several natural experiments in order to assess the impact of policy changes and enables for controlling for structural factors (such as rule of law, contract enforcement, and the level of corruption). This paper applies process tracing and content analysis as the two methodological approaches. With the aforementioned case study, this paper intends to establish the first step to inductively construct a middle-range theory of ideational, institutional and material dimensions of a bank run.