Essay on Impact of Financial Crisis on Banks
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Added on 2020-06-05
Essay on Impact of Financial Crisis on Banks
Added on 2020-06-05
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TABLE OF CONTENTSINTRODUCTION...........................................................................................................................1DESCRIPTION ABOUT THE BANKS AND FINANCIAL CRISES...........................................1MARKET FAILURE AND BEHAVIOURAL BIAS.....................................................................4RECOMMENDATIONS.................................................................................................................5CONCLUSION................................................................................................................................6REFERENCES................................................................................................................................8
ILLUSTRATION INDEXIllustration 1: Northern Rock...........................................................................................................2Illustration 2: Various businesses at Northern Rock........................................................................3Illustration 3: Change in Demand and Supply of Money................................................................4Illustration 4: Effect of Financial Crises..........................................................................................5Illustration 5: Amount of Loan provided by Banks.........................................................................6
INTRODUCTIONEssay incorporates impact of financial crisis over the UK economy and its wider impacton Northern Rock which demands aid from the bank of England to meet its liquidity needs. Theaim behind this essay is to understand impact of financial crisis on banks and reaching to aconclusion to what banks should undertake to restructure and reposition itself. The impact offinancial crisis has affected Northern Rock in the UK as well as Lehman Brothers in New Yorkwho faced huge losses and ultimately collapsed.DESCRIPTION ABOUT THE BANKS AND FINANCIAL CRISES Bank failures are common and occur mostly in every region or country due to certainimbalances (Dewandaru, Masih and Masih, 2018). However, the cost associated with thecollapse of banks is huge which might affect economic growth and stability. At times, reservebanks and government intervene to provide help to banks in order to rescue them frominsolvency. Failure of banks impacts its stakeholders and brings in multiple consequences forothers as well. One of the essential consequence is that the depositors are unaware of the stabilityor failure of banks. Northern Rock was the one of the biggest casualty of the global financialcrisis that occurred between 2007 and 2009 (Katie, 2013). During this period, the bank facedliquidity problems, and was forced to borrow from the Central Bank of England to resolve itsliquidity issues. Another major problem of the global crisis were the bankruptcy of Lehmanbrothers which marked the history of bank Failure. The global financial market broke down withthe downturn of the fourth largest bank of America. Northern Rock started its operations in 1997 having 75 branches serving billions ofpeople in UK has stopped its operations in 2012. The major issue faced by Northern bank isretailers and customers withdrawing money from the bank which collapsed its normal working.The company aims at providing mortgage facilities to customers and retailers all over UK so asto grow and make profit with loan income (Katie, 2013). Though the organization faced a hugeloss during the 2007-2008 financial crisis, as it was unable to generate ample income to performits daily operations. The bank thus, asked the government to intervene and has faced a downturnbeing impacted by the bank run. The bank went public in 2008 as the government aided the bankproviding billions of amount to function which was an alternative from becoming insolvent. Theasset management company was later acquire by the Virgin Group and is known as VirginMoney engaged in the process of securitization (Rockoff and Suto, 2018). 1
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