Deregulation Fuels Risky Business Models in Financial Sector
Neoliberal deregulation in the 1990s enabled financial institutions to adopt riskier business models, leading to instability and collapse.
Critical Perspectives on International Business · 2009
Key Findings
- 01Demutualisation of building societies was part of a broader neoliberal movement centered on financialization.
- 02Conversion to banks provided access to wholesale borrowing, new investors, and financial instruments like securitisation.
- 03The collapse of these institutions was linked to their reliance on these new funding sources and instruments, which were incompatible with mutual operations.
Application
Design takeaway
When innovating business models, especially in regulated industries, consider the potential for unintended consequences arising from market liberalization and increased financial complexity.
How to apply
When evaluating new market opportunities or business models, analyze the prevailing regulatory landscape and anticipate how changes in policy could affect the viability and risk profile of the proposed model.
Project actions
- 01When researching a new product or service, investigate the regulatory environment it will operate in.
- 02Consider how market trends and economic policies might influence the success or failure of your design.
Method & Evidence
Variables
Strengths & Limitations
Strengths
- +Provides a critical perspective on the impact of deregulation.
- +Connects theoretical concepts (neoliberalism) to real-world events (financial crisis).
Limitations
This study focuses on the financial sector; its findings might not directly apply to other industries without careful consideration.
Reliability & validity
The study's reliance on literature and media analysis means its findings are subject to interpretation and the availability of source material. The long-term implications are still unfolding, affecting definitive validity.
Think critically
To what extent does deregulation inherently lead to increased risk-taking in business models, and are there mechanisms to mitigate these risks while still fostering innovation?
Design Principles
"Innovation must be coupled with robust risk management and an understanding of systemic impacts."
Understanding how deregulation influences business model innovation is crucial for designers and strategists. It highlights the potential for market liberalization to incentivize short-term gains over long-term stability, impacting product development and market positioning.
What This Means for Your Design
When banks were allowed to change their rules (deregulation), they started taking more risks with their money and how they borrowed it, which eventually caused some of them to fail.
How to use in your project
- 1.Use this research to justify the importance of considering market and regulatory factors in your design proposal.
- 2.Cite this paper when discussing the potential risks associated with a new business model or product in a deregulated market.
Add to My Project
Quick Cite
(2009). From demutualisation to meltdown: a tale of two wannabe banks. Critical Perspectives on International Business. https://doi.org/10.1108/17422040910938749 Retrieved from https://designdex.org/study/b8371c2a-5380-4672-ad8c-bafac22ab678/deregulation-fuels-risky-business-models-in-financial-sector
Paragraph starter
The demutualisation of financial institutions, as exemplified by the cases of Northern Rock and Bradford & Bingley, demonstrates how deregulation can incentivize the adoption of riskier business models. These institutions gained access to new funding sources and financial instruments, which, while offering potential for growth, also introduced significant systemic risks that ultimately contributed to their collapse during the 2007/2008 financial crisis. This highlights the critical need for designers and strategists to thoroughly assess the interplay between market liberalization, business model innovation, and potential long-term consequences.
Source
Critical Perspectives on International Business
From demutualisation to meltdown: a tale of two wannabe banks
journal · 2009
View sourceQuestions about this research
- What does the research say about deregulation fuels risky business models in financial sector?
- When innovating business models, especially in regulated industries, consider the potential for unintended consequences arising from market liberalization and increased financial complexity. Evidence: Critical Perspectives on International Business (2009).
- Why does "Deregulation Fuels Risky Business Models in Financial Sector" matter for design?
- Understanding how deregulation influences business model innovation is crucial for designers and strategists. It highlights the potential for market liberalization to incentivize short-term gains over long-term stability, impacting product development and market positioning.
- How can designers apply this research?
- When innovating business models, especially in regulated industries, consider the potential for unintended consequences arising from market liberalization and increased financial complexity.
- What were the main findings?
- Demutualisation of building societies was part of a broader neoliberal movement centered on financialization.. Conversion to banks provided access to wholesale borrowing, new investors, and financial instruments like securitisation.. The collapse of these institutions was linked to their reliance on these new funding sources and instruments, which were incompatible with mutual operations.
- What research method was used?
- Qualitative analysis of literature and media coverage..
- How strong is the evidence?
- Evidence strength is rated Strong effect, based on a 2009 journal from Critical Perspectives on International Business.
- What should I do differently in my next project?
- When evaluating new market opportunities or business models, analyze the prevailing regulatory landscape and anticipate how changes in policy could affect the viability and risk profile of the proposed model.
- What are the limitations?
- The long-term consequences of the 2007/2008 crisis are still uncertain, and future events may alter the interpretation of the findings.
- Is there evidence that business models affects design outcomes?
- The shift from mutual societies to banks, driven by deregulation, allowed for riskier financial practices and increased reliance on external funding, ultimately contributing to their downfall. Understanding how deregulation influences business model innovation is crucial for designers and strategists. It highlights the Source: Critical Perspectives on International Business (2009).
- Where does this market liberalization research apply?
- Financial sector, banking, deregulation It sits within innovation & markets research on designdex.org.
Related research topics
business models design research · evidence on business models · does business models improve design outcomes · market liberalization studies for designers · business models and market liberalization findings · innovation & markets research evidence