The History Of The Airline Alliances Tourism Essay Example

The History Of The Airline Alliances Tourism Essay During the last decennaries, several so called confederations have been formed in the air hose industry. Harmonizing to Stanford-Smith, Chiozza Edin, a strategic confederation can be explained as any signifier of long-run cooperation between two or more administrations, where the parent administrations remain separate legal entities, which is intended to basically alter the merchandise or service, or its production/delivery method, in a given concern unit ( p. 958 ) . At this minute, there are three chief air hose confederations around the Earth. First of wholly, Star Alliance, which was created in 1997 and presently dwelling of 27 member air hoses ( Star Alliance, 2012 ) . Second, OneWorld, established in 1999 and soon holding 12 members. Finally, the youngest air hose confederation is SkyTeam, formed in 2000 and consists now of 18 member air hoses ( SkyTeam, 2012 ) . This paper describes the assorted impacts of air hose confederations. In the first chapter, the impacts of air hose confederations on their members will be discussed. Second, the effects of allied air hoses on non-member air hoses will be argued. And eventually, the influences of air hose confederations on the airdromes they fly at will be explained. In each chapter, both positive and negative influences will be discussed. 1. Impacts on member air hoses Positive impacts on member air hoses We will write a custom essay sample on The History Of The Airline Alliances Tourism specifically for you for only $16.38 $13.9/page Order now We will write a custom essay sample on The History Of The Airline Alliances Tourism specifically for you FOR ONLY $16.38 $13.9/page Hire Writer We will write a custom essay sample on The History Of The Airline Alliances Tourism specifically for you FOR ONLY $16.38 $13.9/page Hire Writer Airline confederations have several positive impacts on their member air hoses. In this paragraph, three illustrations of positive impacts will be explained. First of wholly, it is argued that confederations have a positive consequence on salvaging an air hose s costs. For case, when purchasing aircraft stuffs for care intents, member air hoses can cut down the sum costs by buying these resources together and may have majority price reductions. The same technique can besides be used for majority buying aircraft. For illustration, in 2003, four members of Star Alliance intended to bulk purchase up to 200 standardized regional aircraft ( Doganis, 2006, p. 93 ) . In fact, harmonizing to Doganis ( 2006 ) , it is estimated that joint buying can cut the monetary values paid by up to seven per cent and finally cut downing the entire bill by up to a billion dollars every twelvemonth ( p. 93 ) . Furthermore, the joint usage of other services, for case land handling or catering installations, can besides assist in cut downing air hose costs ( Bissessur A ; Alamdari, 1998, p. 335 ) . Second, it is said that air hoses can gain from increased rider traffic when being in an confederation. This addition is by and large caused by the extension of the air hose s web by utilizing a code-share understanding ( Bissessur A ; Alamdari, 1998 ) . Code sharing is good for both the selling air hose and the operating air hose. On the one manus, it is advantageous for the merchandising air hose as it is selling a ticket of the operating air hose under its ain designator codification. This means that the merchandising air hose additions entree to new markets without holding to run their ain aircraft at that place. On the other manus, the operating air hose is likely to transport more riders on board as the tickets are sold through more distribution channels than instead its ain. Table 1 Wagess and associated costs of labor as a per centum of entire operating cost ( 2002 ) Beginning: Doganis, 2006, p. 119 Finally, it is argued that an air hose confederation has a good consequence on a member air hose s labor costs. Nowadays, labor costs represent rather a considerable portion of an air hose s operating cost. As can be seen in Table 1, rewards and associated costs of labors largely account for 20 to 35 per cent of the air hose s entire operating cost Doganis ( 2006, p. 119 ) . Harmonizing to Doganis ( 2001 ) , labour costs differ greatly between air hoses in the same markets globally, unlike other costs as such as land handling, fuel and airdrome fees. Iatrou ( 2004 ) gives two examples how an air hose confederation could assist in cut downing labor costs. First, the figure of gross revenues and land forces could be reduced by sharing offices at bases of another member air hose, alternatively of keeping its ain offices across the Earth. Second, it is argued that confederations could ease member air hoses to profit from the low-wage construction of its spouses in other states, without salvaging on employee quality. This could for illustration apply to the enlisting of cabin and cockpit crew ( p. 99 ) . Negative impacts on member air hoses Although confederations have several advantages for their member air hoses, there are besides some downsides for the confederation participants. This paragraph discusses three chief negative effects on spouse air hoses. First, it is argued that take parting in an confederation could impact an air hose s trade name image ( Kleymann A ; Seristo , 2004 ) . This job may be triggered by the assortment of images within the confederation. The writers suggest that it could be possible that an image of an confederation is created that is unlike the image of any of the attached air hoses. However, a grant between the images of the most dominant member air hoses is considered to be more likely. For smaller air hoses, it could be considered difficult to accommodate to the created image of the confederation ( p. 120 ) . Second, conflicting understandings could besides be considered as a negative consequence. Iatrou ( 2004 ) explains that it is likely that all confederation members use the same provider. Before an air hose joins an confederation, it normally has a long-standing relationship with different providers, such as catering, Central Reservation Systems ( CRS ) and so on. As a effect, the air hose may happen it hard to revoke these contracts because of possible punishments that may follow. What is more, when an air hose agrees on a new provider, it will really probably have to put clip and money in acquiring familiarised with the new providers and their systems ( p. 114 ) . Finally, it can be argued that increased costs for an air hose could besides be a possible negative impact. Following to the regular subscription fee that a member air hose is ought to pay, Iatrou ( 2004 ) references another type of cost for the air hose, which are the alleged sunk-costs . These touchable disbursals cover all accommodations that have to be made in order to run into the confederation s demands, for case the aircraft inside. These investings by the member are required to guarantee effectual confederation operations and to hold consistent committedness of the member air hoses to the confederation. It goes without stating that, particularly for comparatively little air hoses, these costs can be seen as a considerable investing. One can reason that, as a consequence, this investing might do them more dependent on the confederation ( p. 115-116 ) . 2. Impacts on non-member air hoses 2.1. Positive impacts on non-member air hoses It can be considered that confederations have positive impacts on non-member air hoses. That is to state, how air hoses can profit from non take parting in an confederation. It can be argued that some air hoses, presently non take parting in an confederations, do non desire to fall in an confederation, because of their alone concern theoretical account. Iatrou ( 2004 ) illustrates the grounds for this dissociation on the footing of interviews with two air hoses, that have non joined a planetary confederation so far and make non mean to fall in such an confederation. First of wholly, it is argued that air hoses that are non likely to fall in an confederation, are of the sentiment that they have alone trade name , offering alone merchandises . One can therefore state that these air hoses have created such a trade name consciousness that it is non for the interest of their image that they want to fall in an confederation. Second, it is said that it would non be even more good for an air hose to fall in an confederation in footings of web enlargement. For illustration, Virgin Atlantic has specified in the interview that they are non dependent on any feeders, as of their ain web traffic as less than 10 per cent is linking traffic. Third, as discussed in the old chapter, confederation entry fees and other costs form a barrier against fall ining an confederation. Some illustrations of these costs are the constitution of the new IT substructure and distribution channels, and so on. Finally, the writer argues that bureaucratic burden is another indis pensable ground why an air hose does non desire to fall in an confederation. It can be said that there are some rather important charges of the direction of take parting in confederation meetings, which consummate at batch of clip on a annual footing ( p. 160 ) . 2.2. Negative impacts on non-member air hoses It can be said that air hose confederations besides have negative influences on air hoses outside their partnership. In this paragraph, two chief negative impacts on this group of air hoses will be discussed. First, Bjork ( 2002 ) explains the effects of competition between allied air hoses and non-member air hoses. The writer argues that air hoses that dominate a hub are likely to have a greater figure of slot allowances at their chief hubs, which will likely take to some anti-competitive concerns. The writer continues by giving the illustration of a step initiated by the US Department of Transport ( DOT ) to cut down this anti-competitive state of affairs. First of wholly, the US DOT has recognised that where service in the market is constrained by slot handiness, a hub bearer with entree to a big pool of slots has even greater handiness to react in entry in an anti-competitive manner because the entrant will be unable to add capacity on its ain ( p. 28 ) . As a effect, in order to excite competition in some markets, the US DOT has granted a restricted figure of slot freedoms to new air hoses that wish to vie in that peculiar market. Unfortunately, the attack of the US DOT did non ho ld the consequence that was ab initio wished, and therefore did non increase the competition in these markets. The ground given for this was that, normally, new participants do non happen it economically justified to come in into a market which is dominated by a single-hub air hose in order to take part ( Young, 1999 ) . Bjork ( 2002 ) argues that this logical thinking can be relied on the market portions of hub air hoses. It can be seen in figure 1 that KLM Royal Dutch Airlines ( KL ) is by far the largest operator at Schiphol Airport with a market portion of about 50 per cent. A hub bearer as KLM has created over the old ages a changeless addition portion of available slots at their hub airdromes, which are called fortress hubs ( p. 29 ) . Figure 1 Airline market portion at Amsterdam Schiphol ( 2011 ) based on air conveyance motions Abbreviations AF Air France AZ Alitalia BA British Airways DL Delta Airlines HV Transavia.com KL KLM LH Lufthansa OR ArkeFly SK SAS Scandinavian U2 easyJet Beginning: compiled by the writer ; informations beginning: Schiphol, 2011, p. 25 However, congested hubs are non the lone cause for concern with anti-competition. The decrease in competition can besides be reduced when rivals join together in a amalgamation or confederation, particularly when they were once active on the same path ( Bjork, 2002 ) . Furthermore, the writer describes that particularly heavy long-haul hub-to-hub paths are threatened, as some of these hubs are inviolable fortresses . Doganis ( 2006 ) mentions the illustration of the amalgamation of Northwest Airlines and Republic Airlines which was consummated in 1986. Both Northwest which focussed largely on medium/long-haul and Republic which focussed more on short-haul operations used the airdrome of Minneapolis St. Paul ( MSP ) as their chief hub and competed on many paths. The US Department for Transport, responsible for air hose amalgamations at that clip, approved the amalgamation for two grounds. First, because the webs of both air hoses were likely to complement each other. Second, bec ause the synergism would be an chance for efficiency additions. However, the US Department of Justice argued that the amalgamation was anti-competitive and hence should non be permitted. As a effect of the sanctioned amalgamation, non merely competition was abolished from many duopolistic paths, but the merged Northwest became wholly supreme at MSP ( p. 95-96 ) . As can be seen in figure 2, Northwest ( NW ) , together with its code-share spouses, were responsible for 67.7 per cent of the flights, and 70.8 per cent of all riders at MSP in 2009. Furthermore, Bjork ( 2002 ) references that the strength of the big air hose at a hub airdrome is non the lone factor that threatens new entrants. The writer continues by saying that the US Department of Transport ( DOT ) has besides acknowledged that an incumbent air hose can beef up its solid place at a hub airdrome by a figure of steps and accordingly can censor all effectual competition. For illustration, it can be said that most big air hoses have acquired commuter spouses or have certain understandings with them. This ensures traffic flows between little spokes and the chief hub, which feed the international or intercontinental flights of the incumbent air hose. When this big air hose culls to interline at of import hub airdromes with new entrants, it may restrict the ability of the regional bearers to obtain provender traffic. As a consequence, limited competition is realised in both thin feeder markets and long-haul hub-to-hub markets ( p. 30 ) . Figure 2 Airline operations of major air hoses at Minneapolis-St. Paul Airport ( MSP ) in 2009 Abbreviations AA American Airlines DL Delta Airlines FL Air Tran SY SunCountry UA United Airlines US US Airways WN Southwest Airlines Beginning: compiled by the writer ; informations beginning: MSP Airport, 2009 3. Impacts on airdromes 3.1. Positive impacts on airdromes It can be stated that the presence of air hose confederations has assorted positive impacts on airdromes. First of wholly, as all members in an confederation have an extended finish web, because of the connecting options of their confederation spouses, it can be argued that the figure of transportation riders at airdromes additions. Figure 3 shows that the figure of transportation riders at Amsterdam Schiphol Airport in the Netherlands has risen steadily from 18 million in 2004 up to 20.3 million in 2008 ( Schiphol, 2011 ) . Hence, it can be believed that the presence of the SkyTeam confederation, which uses Amsterdam Schiphol as a hub, has certainly contributed to the growing of transportation riders. Second, as a effect, this increasing figure of transportation riders has besides a positive consequence on the purchase of duty-free merchandises in the airdrome stores. In order to increase the gross revenues at airdrome stores, an airdrome can make up ones mind on opening forte shops which may involvement international transportation riders. To utilize the illustration of Amsterdam Schiphol, the airdrome has opened more luxury duty-free shops in answer to the increasing demand by particularly Russian and Asiatic transportation riders. For illustration, this includes a Finest Spirits A ; Cigars shop and a shop that focuses on the sale of assorted cocoa merchandises ( Schiphol, 2011, p. 58 ) . Figure 3 The figure of transportation riders at Amsterdam Schiphol Airport ( 2004-2011 ) Beginning: compiled by the writer informations beginning: Schiphol, 2012 3.2. Negative impacts on airdromes In contrast with the assorted positive effects of air hose confederations on airdromes, there are besides some downsides. In this paragraph, two disadvantages of confederations on airdromes will be discussed. First, as air hose confederations bring an addition in traffic, congestion at an airdrome can be considered as a negative consequence, peculiarly at peak times. Particularly when there is an uneffective usage of the airdrome substructure, it can be difficult to suit the flights in a short timeframe ( Dennis, 2001 ) . At many of these types of airdromes it has been considered ineluctable to divide the usage of the track into time-defined sections normally known as slots ( Bjork, 2002, p. 28 ) . Harmonizing to IATA ( 2011 ) , slots can be defined as a permission given by a coordinator for a planned operation to utilize the full scope of airdrome substructure necessary to get or go at an [ aˆÂ ¦ ] airdrome on a specific day of the month and clip ( p. 11 ) . Besides, most flights at hubs are scheduled in so called waves . In each wave , a big figure of geting flights in a short timeframe is followed by more or less the same figure of goings, after leting some clip for rea llocation of riders and baggage. For illustration, figure 4 shows the moving ridge system of Germany s flag bearer Lufthansa at Munich Airport. This figure shows that a regular weekday consists of four moving ridges. Figure 4 Wave-system analysis of Lufthansa at Munich Airport Beginning: Burghouwt, 2007, p. 69 As airdromes do non hold an unrestricted extremum capacity during a wave , air hoses should accommodate their agendas consequently. Dennis ( 2001 ) discusses two chief options for rescheduling. Flights can either be added to the boundary lines of the present moving ridges, or new moving ridges can be developed to suit these extra flights. With respect to the figure of connexions, the first option is more likely to be chosen. However, while widening the current moving ridge, the connexion clip will besides increase. Figure 5 implies that a moving ridge with about 50 aircraft is likely to be the best option. Passing this figure could affect excess waiting clip for riders, which could ensue in an increased extremum burden on the terminal edifice ( p. 2 ) . Second, it is argued that the investing that airports will hold to do for confederations in order to suit seamless transportation connectivity, can besides hold a negative consequence on airdromes. In order to cut down the Minimum Connecting Time ( MCT ) for riders, airdromes have made some accommodations to their substructure. An illustration is Brussels Airport in Belgium, which upgraded their imposts and in-migration installations to make a better flow of riders reassigning from a Schengen beginning to a non-Schengen finish. Nevertheless, some airdromes are fundamentally non designed to suit traffic from air hose confederations. This is, for case, the instance when an airdrome consists of multiple terminuss that are non located near each other. This might take a rider a long clip to reassign when confederation spouses are spread over multiple terminuss, impacting the MCT as good ( Dennis, 2001 ) . Figure 5 Increase in connexions with moving ridge size ( based on 60 arrivals/departures per hr and 30 minute lower limit connecting clip ) Beginning: Dennis, 2001, p. 2 Decision Lorem ipsum dolour sit amet, ad Mali moderatius neglegentur eum. His suas eripuit scribentur ad, NEC in docendi ocurreret persequeris. Deseruisse Theophrastus copper vix, ex mel utamur repudiandae. Possit tacimates ne est, ut has platonem oportere. To sum up it can be said that what these unaligned air hoses resent in confederations is their sole character, the bureaucratic burden and the multi-lateral rank that distracts an air hose. Non-alignment agencies independent determinations that are taken quicker, version to altering demands and undivided focal point on the nucleus concern of the air hose. These air hoses have been helped in their determination non to fall in an confederation by the fact that the majority of inter-carrier understandings continue to be on the footing of bilateral trades and that confederation groupings are non truly sole. Alliance bearers retain a host of bilaterals with non-members and there are several cases of codification sharing between members of rival planetary confederations. Once the form of planetary confederations becomes much clearer and more stable and alliances become more and more sole in nature, it will go really hard for unaligned air hoses to collaborate with air hoses in confederatio n groupings. Furthermore, if existing confederations proceed to deeper integrating and accomplish ultimate cost decrease, this will tip the graduated table in favor of confederations, as it will increase their profitableness and competitory advantage. Such developments will set excess force per unit area on the unaligned air hoses to re-evaluate their attack towards confederations.

Northern Rock Bank

Northern Rock Bank Introduction Northern Rock is a bank operating under the umbrella of Virgin Money in the United Kingdom. It was established in 1965 and 30 years down the line, it had acquired approximately 53 building societies in England.Advertising We will write a custom case study sample on Northern Rock Bank specifically for you for only $16.05 $11/page Learn More Over the years this bank was being considered as one of the top lenders in the UK, especially in relation to mortgages. Prior to 2007, Northern rock had an investment plan which was to result in securitization. This according to Milne Wood involved â€Å"borrowing heavily in the UK and international money markets, extending mortgages to customers based on this funding and then re-selling these mortgages on international capital markets† (518). This, however, failed in 2007, when, owing to the global financial crisis, the demand for credit facilities from investors went down and Northern Rock was unable to pay back the credit it had obtained from the money markets. Lender of last resort This is a facility that allows banks to survive a financial crisis. It is mostly offered by the central bank. When Northern Rock was faced with the liquidity crisis in 2007, it looked up to the Bank of England for emergency support but this was not possible since it could not provide the facility. Many scholars, including Vesala (2006), Herring (2007), and Shin (2009) blame the situation in Northern Rock to the inability of the Bank of England to act promptly indicating that had it performed its role as a lender of last resort, the bank run would have been avoided. In fact, Shin indicates that â€Å"in its role as a lender of last resort, the Bank of England had been able to exert significant moral suasion over the banking sector, and the discount office was able to obtain information from banks on a purely informal basis† (2009,p.103).Advertising Looking for case study on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More Other scholars believe that the Bank of England failed to act because Northern Bank had not provided it with sufficient information concerning its discount facilities. They also argue that the management of Northern Rock failed to heed to liquidity warnings and this acted as a hindrance when they needed assistance. These claims are, however, refuted by Freixas et al (2009). He asserts that a central bank is expected to perform its role irrespective of the actions of the other party (151). He states that â€Å"even when the central bank does not have the formal statutory responsibility for banking supervision, it can still obtain the information it needs to act as lender of last resort† (2009,p.152). Kane (2008) believes that the Northern rock issues exposed the faults in the government with regard to dealing with financial crisis. These faults include â€Å"the workings of e mergency liquidity assistance, some others the workings of deposit insurance and some others the insolvency and pre-insolvency arrangements† (2008, p.50). All these boil down to the functions of the Central bank as a lender of last resort. Financial crises in banks are one of the greatest challenges in most economies, since failure of banks spells out a failure in the entire economy. Liquidity lending is therefore considered to be an important factor since it is usually the solution to most banks going through a crisis. Some of the instruments available to governments dealing with financial crises include â€Å"the central bank’s role as a lender of last resort, deposit insurance schemes, government’s policies to shield depositors’ insolvency laws, among other preventive measures† (FSA internal Audit division, 2008, p. 39). Despite all the other actions, the lender of last resort factor is the most effective since it provides the banks with the cred it facilities to continue with their operations promptly. Prior to the crisis, Northern Rock was a successful institution though not influential to the point of thinking its failure would affect the economy in any way. This issue however attracted the attention of many financial analysts since it brought out the weaknesses of the Bank of England in dealing with crises faced by the banks.Advertising We will write a custom case study sample on Northern Rock Bank specifically for you for only $16.05 $11/page Learn More Due to this exposure, the government made a commitment to offer the required liquidity, and this worked since the bank run in Northern Rock stopped instantly. House of Commons (2008) therefore made a conclusion from this issue that the run would have been avoided all together, if all parties had been playing their roles effectively. This can, however, not be blamed on the Bank of England since it had not dealt with such an issue in the recent pa st. The activities in relation to acting as a lender of last resort were rarely carried out, hence the policies were outdated. This explains why the situation caught all relevant bodies including Northern Rock itself by surprise (House of Commons, 2008, p. 23). Northern rock and the FSA In the view of financial analysts, the crisis that hit Northern Rock in 2007 was predictable and some even argue that the crisis was not related to the activities of Northern bank per se. It is believed that the Financial Services Authority (FSA) played a major role in this. An article by Bank of England (2007) made an observation that FSA had given Northern Rock warnings concerning â€Å"the evolving trends in the market which included; sharp asset growth, systemic underpricing of risk, and the risk shifting characteristics of new financial instruments which would not be as water tight as they appeared to be† (2007,p. 2). FSA also indicated that the strategies being used by Northern Rock were unstable since they were depending on large scale market funding; hence, placing the institution in a risky liquidity position. Besides this, FSA had also made an observation in the government’s regulatory system which it claims had a number of loopholes that exposed the financial institutions to issues similar to those of Northern Rock. These, according to FSA (2008) included â€Å"a fundamental flaw in the depository protection scheme, lack of established special bankruptcy regime for banks, lack of predictable resolution regime for handling troubled banks and the existence of an institutional structure of financial supervision that separated responsibility for systemic stability and lender of last resort from prudential supervision of individual banks† (FSA, 2008, p. 33).Advertising Looking for case study on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More Owing to the financial stability that had been witnessed in the region over the years, these observations seemed not to be having any ground, until the real risk was witnessed in Northern Rock, and this acted as a wakeup call to FSA. At the beginning of 2007, FSA considered Northern Rock as one of the best performing financial institutions in the UK. What it failed to realize at that time were the mortgage risks that it was exposed to owing to the fact that the institution dealt mostly with international investors. This risk was brought about by the financial crisis that was being witnessed all over the world during that period. Observations made later on indicated that â€Å"by mid-September, it had become apparent to Northern Rock that longer term funding markets were closed to it. Rollovers were largely continuing but at shorter and shorter maturities and Northern Rock lacked the option to draw on sufficient prearranged contingency liquidity lines of credit and did not benefit f rom a third party injection of capital† (FSA, 2008,p. 34). Due to this, FSA made an endorsement indicating that the Bank of England was deemed to provide liquidity facilities to all the banks that needed this kind of support in the UK, including Northern Rock. This crisis mainly focused on three institutions, the Bank of England, the treasury and FSA, owing to their joint responsibility of ensuring stability in the financial sector. FSA is blamed for permitting Northern Rock to raise its dividends irrespective of the already messed up financial position. An article by FSA Internal Audit Division (2008) supports these allegations by indicating that, â€Å"in in their own internal audits of the experience and compilation of the lessons learned from the Northern Rock failure contained a broad list of problems within FSA which included lack of rigor in the analyses conducted and failure to devote insufficient resources to monitoring what are regarded as high impact situationsâ₠¬  (Audit Division, 2008, p. 42). This report indicates that the major issues that led to this failure included organizational shortfalls, lack of sufficient skills in the supervisors, and poor methods of supervision, especially in large institutions operating at international levels. From the discussion, it is clear that FSA was in a position to save Northern Rock from the downfall, had it acted on the early signs. In fact, financial researchers such as Milne Wood (2008), Shin (2009) and Herring (2007) indicated that FSA devoted little time to the process of checking the level of stress tolerance in Northern Rock, hence ignoring many factors that eventually worked against the institution. Shin (2009) specifically points out that â€Å"insufficient attention was given to the banks challenging governance programs and risk mitigation processes† (2009, p.110). Herring (2007) concurrently indicates that â€Å"FSA not only ignored numerous early warning signs of troubles with N orthern Rock, but also ignored a breach of required minimum capital standards early in 2007† (p.10). Besides these, it was also noted that the bank failed to inform its stakeholders of this failure, and FSA was aware of this, but failed to take action. From this, a conclusion can be drawn that despite the fact that Northern Rock was responsible for its own peril, FSA also played a major role of not intervening where it would have been and also assuming the warning signs that were so loud and clear. Failure of prudential supervision In any financial setup, there are four aspects that need to be considered to come up with a stable financial system. The Bank of England (2007) indicates that â€Å"the first aspect is prudential regulation of financial firms, second is systemic stability, third is the lender of last resort role and finally the conduct of business regulation and supervision† (Bank of England,2007,p. 6). The issue in question especially in relation to the Nort hern Rock problem is the institution responsible for prudential supervision, whether it is the bank of Europe, the treasury or FSA. Irrespective of the institution responsible, this type of supervision is mandatory in financial institutions, failure to which results in cases such as what was experienced in Northern Rock (Freixas et al, 2007, p. 12). This conflict on the question of supervision mandate led the government to redefine the roles of the institutions in the financial sector. As a result of this, it was realized that supervision lies with FSA. The crisis in 2007 created the need to develop an official set of organizations and practices for assisting in the recovery of failing banks. This led to the officiating of a memorandum of understanding between the three bodies, that is, treasury, FSA and the Bank of Europe. A report by FSA internal audit division (2008) indicated that there were five basic standards that came with this agreement and these were â€Å"the existence o f a clear division of responsibilities, appropriate accountability arrangements, the avoidance of duplication of responsibilities, exchange of relevant information and mechanisms for crisis management† (2008,p.50). The causes behind the problem of Northern rock are interrelated to the extent that it is difficult to tell exactly what the main cause of this issue was. However, it was realized that prudential supervision of the banking institution was being conducted in a poor way and this is therefore deemed to be the greatest contributor to the whole problem. According to the Bank of England (2007) â€Å"this institution had been a pioneer in risk based supervision; focusing attention where it is most important† (2007, p. 8). This credit was however withdrawn after the Northern Rock crisis which revealed the poor laid supervision strategies. Many financial analysts believe that FSA was in a position to foresee this situation, long before it occurred. From this, it is evi dent that the Northern Rock crisis depicted a high level of failure in the prudential supervision of banking institutions. These failures according to FSA (2008) include â€Å"reliance upon seriously deficient accounting and capital adequacy standards; failure to monitor institutions in a timely, effective, and on-going fashion; failure to intervene appropriately when problems were identified; and promoting the welfare of the regulated institutions and the regulatory agency rather than the insurance fund or the taxpayer† (FSA, 2008, p.43). In fact, hearings in the House of Commons – a committee responsible for establishing the cause of the problems surrounding Northern Rock, indicated that FSA failed to perform effectively. House of Commons alleged that this was by way of â€Å"failing to monitor the institution and allowing Northern Rock to increase its dividends despite its troubled financial position† (2008, p.23). The supervisory evaluations of Northern Rock conducted by FSA did not put much emphasis on liquidity issues. Conclusion From the above discussion of the issues surrounding the Northern Rock problems, it is evident that these problems could have been avoided if all the parties concerned, that is, Northern Rock bank itself, the Bank of Europe and FSA were responsible for the actions that were taken before 2007. Northern Bank was responsible for the crisis in the sense that it did not perform a long term analysis of its actions. In its operations, it failed to consider the possibility of liquidity risks in the financial market. Bank of Europe was responsible in the sense that it did not act promptly as a lender of last resort in providing the credit requested by Northern Bank when it started experiencing the liquidity challenges. References Bank of England 2007, Financial Stability Report. Web. Freixas, X, Giannini, C, Hoggarth, G Soussa, F 2009, ‘Lender of last  Resort: a review of the literature’, Financial Sta bility Review, Vol. 7, pp. 151–167. FSA (2008) ‘The supervision of Northern Rock: a lessons learned review’, Internal Audit, pp. 32 43 FSA Internal Audit Division 2008, ‘The Supervision of Northern Rock’ A Lessons Learned Review, pp. 37 56 Herring, R 2007, ‘Resolution Strategies: Challenges Posed by Systemically Important Banks’, lecture at Regional Seminar on Financial Crisis Management, pp. 5 16 House of Commons 2008, ‘The run on the Rock’, Treasury Committee, Vol. 1, pp. 23 Kane, E 2008, ‘Regulation and supervision: an ethical perspective’, Principles v Rules in Financial Regulation, Vol. 2 no. 5, pp. 48 56 Milne, A Wood, G 2008, ‘Banking Crisis Solutions: Old and New’, Review (Federal Reserve Bank of St Louis), Vol. 1 no. 2, pp. 517–530. Shin, H 2009 ‘Reflections on Northern Rock: The Bank Run that Heralded the Global Financial Crisis’, Journal of Economic Perspectives, Vol. 23, No. 1, pp. 101–119 Vesala, J 2006, ‘Which Model for Prudential Supervision in the EU’ Monetary Policy and Financial Market Stability, Vol. 10, No. 1, pp.99-105.