Introduction
The United Kingdom banking industry is the third largest next to the United States and Japan. The global financial crisis affects all international financial institutions and like in the United States, the British banking industry is heavily affected. In 2008, many British banks have capital deficiency after markdowns. Unstable mortgages securities are the main cause of this problem because their values dropped drastically. This crisis expanded during the year 2007 and 2008 when banks lose trust their counterparts with each other. The British government has addressed this problem through mixed capital injections and asset guarantees. In 2009, the British government decided to inject into The Royal Bank of Scotland (RBS) £25.5 billion as capital and guarantee assets of £325 billion, increasing the government’s ownership to near 95%. The government also agreed to insure up to £250 billion of assets, holding a 43% ownership stake. In March 2009, the government agreed to insure an additional £260 billion, pushing itself to 75% of ownership. The asset guarantees are through the Asset Protection Scheme, a program to “provide protection against credit losses occurring on specified pools of assets above a certain threshold. The British treasury unveiled a multi billion package in an effort to restore confidence in the banking system. Under the proposed plan, at least £200bn will be made available to banks under what is known as the Special Liquidity Scheme that was set up by the Bank of England. In addition, the Treasury is making available another £50bn to a number of banks if they need to repair their balance sheets. The banks involved in the plan are: Abbey, Barclays, HBOS, HSBC, Lloyds TSB, Nationwide, Royal Bank of Scotland and Standard Chartered. The British government has also committed to help banks refinance short and medium term debt.
The government is prepared to guarantee this to the tune of £250bn. Britain's biggest mortgage lender, Halifax Bank of Scotland, lost 13% of its value due to fears that its profits will be severely affected by the global credit crunch. Both Barclays and Royal Bank of Scotland had nine percent wiped off their share price as the FTSE 100 index has plunged by almost four per cent to a two year low. Fears grew that another major investment bank could be in serious trouble following the near collapse of Bear Stearns.
Literature Review
According to Sanat Rao, Finacle Associate Vice President & Global Head-Sales,
Associate Vice President & Global Head-Sales- Finacle having recorded rapid growth in the past decade is poised to grow further. In an era of mergers and acquisitions, competition is severe. A 2005 study by AT Kearney forecasts a drastic reduction in number of operating banks in Europe by over two-thirds within the next 10 years. To compete successfully, meet regulatory requirements and satisfy customer needs, banks need to invest in technology not only in deploying peripheral applications, but also in modernizing obsolete core solutions.
On the other hand, according to Gordon Rayner (2010), Chief Reporter of the Telegraph news agency, the United Kingdom will face a financial crisis in decades because the financial crisis engulfing the British economy has lurched to a new low as £51 billion was wiped off the value of the country's top companies. Meanwhile, in the economic synopses written by Richard Anderson and Andrew Mullineux (2009), the root of the problems of British banks is like the problems in the United States. The problems in mortgages and the devaluation of its value made British banks experienced a downfall.
Objectives of the Study
The study aims to determine the effects and implication of the global financial crisis in the United Kingdom’s banking industry. The study also aims to determine the cause of the global financial crisis. The study will also seek the possible ways how to resolve the effects of the crisis. The study seeks to answer the following questions:
1. What are the effects of the global financial crisis in the United Kingdom’s banking industry?
2. What are the implications of the crisis to the banking industry?
3. How does the government react to address this financial problem?
Methodology
The study is about the effects of the global financial crisis in the United Kingdom’s banking sector. The researcher gathered data from articles and published material available to be able to answer the research question. The researcher also use data derived from the internet to supply basic information about the study. Current news articles are also use to determine the development of the resolution of the problem.
Conclusion
The British banking industry is hugely affected by the global financial crisis. Many British banks experienced deficits because of problems in mortgages securities just like in the United States. The British government inject mixed investments and and allow loans to banks to resolve the problem. The government wants investor to trust in the stability of the banking system. It ensures that it will provide ample amount of mixed investment in the monetary flow to prevent bank collapses.
References
1. Federal Reserve Bank of St. Loius, British Banking in Crisis[Online] Available at: http://research.stlouisfed.org/publications/es/09/ES0916.pdf[Accessed 19 Feb 2010]
2. Telegraph, UK bank bail-out: The key points [Online] Available at: http://www.telegraph.co.uk/finance/financetopics/financialcrisis/3156699/Financial-crisis-UK-bank-bail-out-The-key-points.html[Accessed 19 Feb 2010]
3. Telegraph, Britain's banking crisis 'may last for almost a decade'[Online] Available at: http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/4298934/Britains-banking-crisis-may-last-for-almost-a-decade.html[Accessed 19 Feb 2010]
4. UK Banking Industry [Online] Available at: http://74.125.155.132/search?q=cache:8bdwo2iGZboJ:www.infosys.com/finacle/finacleconnect/Issue_07/images/kali.doc+Uk+banking+industry&cd=9&hl=tl&ct=clnk&gl=ph [Accessed 19 Feb 2010]
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