Critically assessing the 2008 UK financial crisis through the lens of policy, regulatory and state capture

Almost a decade ago the UK banking system narrowly avoided a complete collapse. Without last minute intervention from the UK Government it was anticipated that the UK economy would face a long and protracted depression. Since then there have been a range of explanations for how these events came about, most of which include central bankers, regulators and governments who either failed to see the impending disaster or were dissuaded from taking pre-emptive action to avoid it.What has been examined in less detail is what caused this inertia.

Within official reports on the crisis in the US and UK are the suggestion that inaction by regulators and central banks was caused by a political philosophy that discouraged unpopular interventions from state institutions into what had been a booming economy. This theory was summarised by one witness to a UK Parliamentary committee as the "universal capture of the regulators and the political process by the financial sector". Similar allegations could be levelled at the policy responses to the crisis, in particular quantitative easing and the nationalisation of key banks (some subsequently sold at sub-market rates) that were considered 'too big to fail'.

The underlying hypothesis of the claims made above is that policy capture by a dominant pro-banking sector ideology narrowed the perceived options available to key decision-makers, which led to sub-optimal policy outcomes. The proposed research will critically examine this hypothesis and assess how far the empirical evidence supports competing theoretical explanations of the crash.

This study will seek to answer the following questions:
- To what extent did state, regulatory and/or policy capture lead to the financial crash of 2008 and determine subsequent policy responses from the UK Government, Parliament, regulators and Bank of England?
- How, if at all, could this capture have been avoided?
- What, if anything, has been done to prevent similar capture from happening in the future?

The project will seek to further knowledge by:
- Developing an operable definition of capture: through a thorough critical engagement with existing literature and consultation with expert academics in this field, the research will produce a robust and relevant definition of capture that can be operationalised for the project. Specifically, this will critically evaluate the utility of different definitions of capture - policy, regulatory and state - for the purpose of the research.
- Elite interviews and analysis of relevant primary and secondary source material: through in-depth interviews with politicians, regulators and civil servants involved in the events preceding and following the financial crisis of 2008, the research will seek an elite perspective on the causes and responses to the financial crisis.

This will aim to explore commonalities and differences in elite perspectives on the cause of the financial crisis, provide unique insights into the decision-making process surrounding the policy responses to it, and test elite responses to the proposition that capture is a plausible explanation for events leading up, and subsequent, to the crisis. The research will be underpinned by a close analysis of relevant documentary material and reports.

Cutting-edge analysis of available proxies for capture: existing research into capture has focussed heavily on one or two variables that are insufficient to provide an all-encompassing analysis of capture, for example, the intensity of lobbying by specific industry groups on key decision-makers. Using new and previously unpublished data, the research will seek to provide a comprehensive analysis of proxies for capture across the institutions and actors relevant to the policy area under investigation.