Table of Contents INTRODUCTION...........................................................................................................................1 TASK...............................................................................................................................................1 1.Analysing and evaluation of the strengths and the weaknesses of banking regulation in ensuring resilience and governance of the bank.........................................................................1 2.Evaluating the advantages and the disadvantages of the post-crisis international and the national regulatory environment to the bank..............................................................................3 3.Evaluating the ability of the UK banks in competing against the international FINTECH and the other non-bank finance providers under the new regulatory framework..............................4 4.Recommendation on the effectiveness of the regulation in facilitating a reliable and the robust regulatory environment in the banking sector..................................................................5 CONCLUSION...............................................................................................................................5 REFERENCES................................................................................................................................7
INTRODUCTION Financial regulation involves the regulation or the supervision which are subjected to the financial institutions towards a certain requirement, guidelines and the restrictions, aiming in maintaining the integrity in the financial system. This might be handled by either the non- government and the government organization. The foremost purpose of the financial regulation isprotectingtheinvestors,promotingthefinancialstability,maintainingmarketorderly, competition, prevention of the financial crime and the fairness. The major classification of the institutionsthatavailsthefinancialserviceinvolvestheinternetbanks,centralbanks, commercial banks, retail banks, credit unions, investment banks, brokerage firms, savings and the loan associations, insurance companies and the mortgage companies. The present study is basedontheBarclaysbank,aBritishmultinationalfinancialservicecorporateandthe investment bank, headquartered in the London. Apart from the investment banking, this bank is organized in several businesses such as personal banking, wealth management, corporate banking and the investment management. Furthermore, the report describes the strengths and weaknesses of the regulation in UK. Advantages and the disadvantages of the post crisis to the Barclay bank and also explains the practices that adopted by UK banks in competing with international FINTECH. Lastly the study includes the recommendations on the effectiveness of the regulation. TASK 1.Analysing and evaluation of the strengths and the weaknesses of banking regulation in ensuring resilience and governance of the bank. Bank selection Impact of P.P.I. scandal on the financial strength of selected bank Governance of current post-crisis bank regulation Strengths of UK banking regulation in ensuring governance and resilience of the banks- Facilitate fragile function of the banks- In the banking the deposits are considered as the liabilities and the lending of money or loans are stated as the assets. Therefore, the balance sheet of the bank is largely comprises the liquid liabilities and the non-liquid assets (Kshetri and Kshetri, 2017). In the case if the people loses the confidence in terms of the system of banking, it is called as the situation of bank run. The liquidity of the bank is trapped in the long term investments as they supply the loans from their pooled deposits. Hence, UK banking regulation 1
acts as the guidelines for the banks to run their activities smoothly. The risk of the bank run can be mitigate with the help of the banking regulation. Avoids Presence of the systematic risk- The UK financial institutions and the banks that are highly interconnected implies or imposes the systematic risk in the system of banking. A default by any bank can leads the other banks in the default towards their creditors and the counter parties (Bauer and et.al., 2018). This effect might lead to the catastrophic effect on the other financial institutions. Therefore, as UK banking regulation provides all the information and the principles regarding the authority who will be responsible for overseeing the banking system. This helps in monitoring and restricting the activities of the banking that are unfair which in turn may results in the banking failure. Thus, regulations prevents the financial crisis in the economy. Protection of the depositors- The depositors that acts the creditor of the banks are not informed or aware about the investment activities of the banks. The risk of the moral hazards incurred when the banks make investment in highly risky assets by using the money of the depositors. Banking regulations provides the assurance to the depositors in terms of the resilience and the banking governance (Docherty, 2018). These guidelines maintain the confidence of the depositorsinthefinancialsystemasrulesregardingtheirprotectionareprovisioned. Furthermore, with the guidelines regarding the insurance of the deposit, it prevents the depositors and reduces the chances of the bank run in the financial system of the country. Theses are the strengths of the UK banking regulation as it provides a good understanding and include all the aspects relating to the bank as well the depositor's financial stability. It is very important preventing the financial crisis and acts as the bases for reporting of any unfair practices by the firm. Weaknesses of UK banking regulations- Poor structure- The regulations relating to the licensing and the permissible activities of the bank are not defined or distinguished clearly which creates complexities for the banks to understand (Kshetri, 2016). Their application becomes difficult due to the presence of unclear structure so the regulations must be framed in a manner that appropriately distinguish the concept of licensing and the permissible activities. Lacks robust and the relevant definitions- The terms used in the regulation differs as per the legal traditions. It differs between the civil law and the common law traditions (Dierick, 2018). This means the regulations includes more of the definitions in terms of the civil or the 2
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commercial codes which h are been overlooked by the banks and the people and act as of no means. Adequate specifications are not provided in relation to the supervision of banking- An adequate or appropriate framework must be provided in the banking regulation regarding the authority who will be supervising the banking activities. However, in UK banking regulations not any guidelines are mentioned regarding the supervisory authority. Such guidelines depict the objectives of the supervisor which are to be fulfilled to attain the soundness of the banking system and to prevent the depositors from any unfair practices. 2.Evaluating the advantages and the disadvantages of the post-crisis international and the national regulatory environment to the bank. As viewed by theGomber and et.al., (2018), Barclay bank has enjoyed the benefit of the post-crisis national and the international regulatory environment it has enhanced its resilience globally towards the future market risk by building up its capital and the liquidity buffers. The greater use of the stress testing by the Barclay bank and its supervisors as the post-crisis facilitated greater resilience on the forward looking. This provides for the better support to the bank of their credit flows in the bad as well as the good times. On the other side it identified by theChambers, Collins and Krause, (2019)that, Barclay bank faces many challenges in adopting these changes and are complex or difficult to assess. However,Tuytens,(2019)depicts that Barclay bank after the crisis has shifted towards the more stable sources of the funding and made their investments in safer and less risky assets. On the other stateNaczyk,and Hassel,(2019) identified that, theses adjustments are based on certain factor that includes cyclical factors like monetary policy and thus might diminish as per the changes in the conditions. Moreover, it has been analyzed by theBogusz and et.al., (2018), Barclays bank through the qualitative evidence had considerably strengthened their practices prevailing internally and achieved stronger risk management. On the other hand it is viewed by theDocherty, (2018),investors holding equity remained skeptical because of the non-recovery of the investor sentiment in the market based indicator towards the Barclay bank with the attainment of the low profitability. By carrying the simulation analysis working group suggested that bank required to execute further structural adjustments and the cost-cutting. However, after the crisis Barclays bank had emphasized geographically in relation to their international strategy and had been seek to intermediate towards more of their claims locally in terms of international regulatory environment. On the 3
other state, crisis has resulted decline in the direct connection of the Barclay bank with other banks through the derivative and the lending exposures. Moreover, system of the Barclays bank had made progress with relatively gaining high capacity in the consolidation. It is viewed by the Kshetri and Kshetri, (2017)that, the effects of the reduced diversity in the business model arises from the Barclays bank re- positioning cannot be assessed towards the commercial banking. This trend had been reached by the shift of the bank towards the more stable sources of the funding. Further the progress had been seen in range of the systematic stability enhancement on the recovery and the resolution framework. Thus,Bauer and et.al., (2018),viewed that, due to the crisis strong growth has been achieved in the overall assets of the banking sector. However, some banking sector in the UK has faced shrinking position in the overall economy. This occurred because of the reduction in their business volumes instead of the exit of the enterprise from the overall market. Advancement in the banking sector been seen in those countries that were very less affected by the crisis, specifically in the emerging market economies. The reduced risk had been observed at the time of losses due to crisis in the trading of non-equity and the businesses of market making of the Barclays bank also reduced. 3.Evaluating the ability of the UK banks in competing against the international FINTECH and the other non-bank finance providers under the new regulatory framework. The response by the UK banks to the fin-tech interruptions is a crucial aspect to the present stage. Fin-tech startups majorly emphasizing on the concept of the unbundling banks, where one type of the product or the service is offered and concentrated on doing it by adopting the best opportunities. However, innovations made by the Barclays bank and the other banks has been greatly strives for the competitive advantage against the Fintech international by offering the specialized services with improvement in the facets of the customer facing financial services. For example such innovations include- Better service- Traditional banks largely attracts the customers by offering them the several kinds of the services which make the customers sticky as the switching cost is high (Docherty, 2018). On the other hand Fintech companies follow the provision of earning the trust of the customers by facilitating them good customer services. Majority of the Fintech companies has cited their competitive edge by enhancing experience of their customers. Betterbranding-Fintechcompaniesbyusingthelatestmarketingtoolssuchas gamification helps in appearing the budget exciting and more and more palatable to the 4
consumers. This induces the UK banks in developing more innovations and the gaining the new opportunities for achieving competencies. Cheaper prices- UK banks containing the virtual operation brings more flexibility in the financial system while Fintech companies generating the cash from the venture capital allows their startups in attracting the large customer base with the competitive pricing. 4.Recommendation on the effectiveness of the regulation in facilitating a reliable and the robust regulatory environment in the banking sector. Clear scope of the application of regulation- The laws and the rules provisioned under the banking regulation must be defined clearly so that proper application can be done by all the banks which in turn facilitates the reliable and robust regulation for the banking sector. All the aspect of the scope must be mentioned that includes the policy in relation to the lending activities of the financial institution through the short-term financing must be differentiated from they deposit. This scope is defined as the “shadow-banking” problem (Kshetri, 2016). The exact identification in relation to the coverage of the type of activities of the non-banking financial institution in the banking regulation is the matter of the effectiveness. Separate working of the approaches must be included in terms of the legal ramifications in the UK banking regulation. Appropriate distinction between the activities- the matters relating to the licensing and the permissible activities of the banks must be distinguished so that more effective looking can be presented and this leads in providing reliable and relevant regulatory framework. The regulation must include the banks who need to take license for various activities and specifying those activities. Breach of this licensing need by the bank will be liable for the punishments provided as the criminal sanction (Gomber and et.al., 2018). The laws will be said to more effective which sets out the activities that are not subject to licensing. The permissible activities such as electronic money issuance, safekeeping, vaults, provision of the payment services and the overseas exchange transactions. Ensuring the scope of the regulation in terms of individual as well as corporations. This means the regulation need to clearly define that all the individuals, corporations and the non-legal enterprises are accountable in any non-compliance that are provided in the relevant provisions. 5
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CONCLUSION From the above report it is concluded that banking regulation of the UK plays an important part in smooth functioning of the banking system and the interest of the depositors is been efficiently managed. The structure of the regulation should be more specific and clear so that better understanding can be evaluated. Many challenges had been faced by the Barclays bankatthetimeofthepostcrisisundertheinternationalandthenationalregulatory environment. UK banks has been adopting many innovations and practices for competing against the Fintech companies. 6
REFERENCES Books and journals Bauer, G. and et.al., 2018. The global financial cycle, monetary policies, and macroprudential regulations in small, open economies.Canadian Public Policy.44(2). pp.81-99. Bogusz, C. I. and et.al., 2018. Introduction: FinTech and shifting financial system institutions. InThe Rise and Development of FinTech(pp. 1-18). Routledge. Chambers, D., Collins, C. A. and Krause, A., 2019. How do federal regulations affect consumer prices? An analysis of the regressive effects of regulation.Public Choice.180(1-2). pp.57- 90. Dierick, F., 2018. EU policies to support financial integration. InElements of the Euro Area(pp. 87-102). Routledge. Docherty,A.,2018.Howshouldbanksmanagethestrategicrisksassociatedwithnew regulations and new sources of competition?.Journal of Risk Management in Financial Institutions .11(2). pp.109-124. Gomber, P. and et.al., 2018. On the fintech revolution: interpreting the forces of innovation, disruption, and transformation in financial services.Journal of Management Information Systems.35(1). pp.220-265. He, M. D. and et.al., 2017.Fintech and financial services: initial considerations. International Monetary Fund. Kshetri, N. and Kshetri, N., 2017. Cybersecurity in India: Regulations, governance, institutional capacity and market mechanisms.Asian Research Policy.8(1). pp.64-76. Kshetri, N., 2016. Big data’s role in expanding access to financial services in China.International journal of information management.36(3). pp.297-308. Naczyk, M. and Hassel, A., 2019. Insuring individuals… and politicians: financial services providers, stock market risk and the politics of private pension guarantees in Germany.Journal of European Public Policy.pp.1-20. Tuytens, P., 2019. Countering financial interests for social purposes: what drives state intervention in pension markets in the context of financialisation?.Journal of European Public Policy.pp.1-19. 7