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Substantial differences remain between the profitability of banks in different European countries. This article considers the relationship between competition and profitability in European banking focussing on the experience of the UK where two issues are considered: why British banks have been earning excess returns for more than a decade and why British banks seem to be more profitable than their Continental counterparts. A paradigm is offered to explain this. A distinction is made between shareholder value (SHV) and stakeholder value (STV) banks whose business objectives are often different. Significant differences exist between European countries in the balance of SHV and STV banks. The UK is almost unique in Europe in having almost exclusively SHV‐based banks. Pressures will intensify for all European banks to adopt SHV strategies, which will imply substantial changes in bank strategies and business operations.

This article considers the role of market monitoring and discipline in policy orientated towards maintaining financial stability. Although it is widely assumed that markets have a potentially powerful role in disciplining banks, the precise mechanisms are not always clear. In this sense, market discipline is something of a 'Black Box'. The purpose of this article is to consider the precise mechanisms within the Black Box and to outline the required conditions for market discipline to be effective. It is found that there is much that policymakers can and should do to enhance the effectiveness of market discipline and to ensure that market discipline is not impeded.

How much regulation do the consumers of non‐bank retail investment services want? The arrival of the Personal Investment Authority raises questions about the necessity, costs, structure and accouni‐ability of regulation, as well as its potential moral hazards.

In August 2007 the United Kingdom experienced its first bank run in over 140 years. Although Northern Rock was not a particularly large bank (it was at the time ranked 7th in terms of assets) it was nevertheless a significant retail bank and a substantial mortgage lender. In fact, ten years earlier it had converted from a mutual building society whose activities were limited by regulation largely to retail deposits and mortgages. Graphic television news pictures showed very long queues outside the bank as depositors rushed to withdraw their deposits. There was always a fear that this could spark a systemic run on bank deposits. After failed attempts to secure a buyer in the private sector, the government nationalised the bank and, for the first time, in effect socialised the credit risk of the bank. It is now a fully state-owned bank. Since then, another British bank (Bradford and Bingley - which was also a converted building society) has also been nationalised. Furthermore, the government has since taken substantial equity stakes in several other British banks as part of a general re-capitalisation programme. Of course, since Northern Rock failed the world has experienced what is arguably its most serious financial crisis ever and in the US much larger and more significant banks have failed. On the face of it, therefore, the Northern Rock crisis pales into insignificance within the global context. Nevertheless, the Northern Rock is particularly significant because it represents in a single case study virtually everything that can go wrong with a bank. As we argue in the first essay in this compendium, it was a multi-dimensional problem. For this, and other reasons, it will surely become a much-analysed case study in bank failure. It is also for this reason that the Editorial Board of SUERF decided to invite a selected group of eminent scholars to write short essays on what they judge to be some of the significant issues raised in the Northern Rock case study. We were anxious to ensure that the authors would not be exclusively from the United Kingdom and of the thirteen contributors, six are from outside the country including perspectives from the United States and Italy. All of the authors were given a completely free hand to select their own focus and no attempt has been made to coordinate or edit the contributions. The lessons to be learned are far from being exclusive to the United Kingdom. This is why the Editorial Board of SUERF has devoted this SUERF Study to this important episode in the history of bank failures.