Effective Ways To Reform The UK Banking System|
Analysis and Discussion|
Final draft Prepared by:Bruce(ZHANG)|
Topic: Which of the suggested reforms to the UK banking system would be the most effective at reducing the risk of future crises in the banking sector?|
The United Kingdom has the most developed financial and banking systems in the world. London has been entitled as the financial centre in the UK, Furthermore it is the primary international financial centre in the world. London is still playing an essential role in the global banking scheme with its dominance unshakable in the finance trading world. UK banking has been known as a well-structured banking system, and it is well-regarded in the world banking industry. In addition, the government policy has consistently aligned with its economy system. In the year of 2008, things have been changed quite dramatically by a fast-spread economic downturn shock wave. Two America Real Estate cooperation, Fannie Mae and Freddie Mac, were bankrupts and this can be seen as the “direct cause” to this long lasting banking crises. After the outbreak of the international financial crises, the British government has acquired 100% of the shares of Northern Rock bank, 83% stake of Royal Bank of Scotland and 41% of the shares of Lloyds bank, and through the Special Liquidity plans to provide emergency financial supports for large banks. During this crisis, it explodes many issues that the government, investors and bankers should be responsible for. Problems have been raised by many people about how to reduce the risk of future crises in banking system: firstly, we need to know that the purpose of bank is to protect and enhance the stability of the monetary system. Generally speaking, a stable and organised financial system is a key ingredient for a healthy and successful economy. Additionally, both taxpayers and consumers should be protected by the innovating banks, which is the main objective to change. During this financial revolution, the banking sector not only needs to establish an appropriate correlation between risk and return, but also ensure sustainable lending to the economy. Introduction:
This essay will mainly discuss effective methods of reducing the risk to future financial banks, which is based on four main purposes of reforming UK banks. Nevertheless, some measures will be show to explain how to improve the effectiveness of treasury and eliminate the risk of future crises though the analysis of current problems in the United Kingdom. This essay will focus on four major aspects. Firstly, the government should isolate the retail business from commercial banks, which it will protect the taxpayer. Secondly, in order to guarantee the benefit of consumers, government should set up capital adequacy requirements. Thirdly, the government should establish the correlations between risk and return, so that it will promote the formation of a highly competitive bank. Finally, if the governor wants to share the risk of banking crises concerns, banks should create a sustainable lending mechanism. It cannot be ignored that the banking system also emerges several limitations.
UK Banking System and Crisis:
First and foremost, the UK independent banking commission should separate and protect the commercial banking group’ s retail banking business in order to maintain the confidence of financial market participants and the stability of the financial markets in the short term. In essence, this method is used to protect the interests of ordinary taxpayers, as well as to reduce the possibility and necessity of a future government bailout of financial institutions in the crisis. An actual example of banking reform has been demonstrated, which was published by the independent commission on banking on 14th June 2012. It is said that the government will make a plan that separates the retail and investment banking...