Impact of Global Financial Crisis on UK
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Added on 2020-10-22
Impact of Global Financial Crisis on UK
Added on 2020-10-22
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LAW QUESTION1
INTRODUCTION...........................................................................................................................3MAIN BODY...................................................................................................................................3Global financial crisis.................................................................................................................3Impact of global financial crisis on UK......................................................................................6Failure of FSA.............................................................................................................................8Recent regulations of UK financial system...............................................................................13CONCLUSION..............................................................................................................................16REFERENCES..............................................................................................................................172
INTRODUCTIONGlobal financial crisis is a broad concept which shows the trauma of funds across the globe due to fluctuation in several factors that affects international finance department. However,financial crisis of 2007-2008 is known as global financial crisis and almost large number of economists said that it was a worst crisis since the Great depression of 1930s 1. Therefore, assignment is going to highlight the major financial crisis which affects the whole world and its influence on entire global platform. In order to cope up with financial issue, various internationalinstitutions are coming up with new policies or ideas to control this situation. Along with this, regulatory frameworks and legitimate bodies of UK have taken major steps by coming up with new legal acts for supporting the nation. Hence, two new regulators are mainly outlined in the report which replaced the existing financial services authority for stabilizing the UK condition. MAIN BODYGlobal financial crisis Global financial crisis highlight the time period where there was availability of extremestress in global financial markets and banking systems in almost mid of 2007 till early of 2009.Basically, it was caused due to the deregulation in financial industry which allows the banks toget involved in hedge fund trading with derivates. After that, bank demanded more mortgageesfor supporting the profitable sale of that derivates. As a result, entire scenario creates a breathtaking financial crisis which led to great recession. By the September, 2008 financial crisisbecome more worsened as stock markets across the globe crashed as well as highly volatile. As aresult, confidence of customers also hit rock bottom due to which every individual tightenedtheir belts and lost their faith on marketplace 2. From the sub-prime to downturn, five phases of most dangerous crisis almost hit theentire globe economy since the Great depression which was found in these five dates such as; 9august 2017, 15th September 2008, 2nd April 2009, 9th May 2010, 5th August, 2011. Initial1. Helleiner, E., 2011. Understanding the 2007–2008 global financial crisis: Lessons forscholars of international political economy.Annual Review of Political Science,14,pp.67-87.2. Erkens, D.H., Hung, M. and Matos, P., 2012. Corporate governance in the 2007–2008financial crisis: Evidence from financial institutions worldwide.Journal of CorporateFinance,18(2), pp.389-411.3
phase is on 9th August 2007 started with the seizure in entire banking system when Merril Lynchtrader Strenfors got a call which change his life. It’s really a sparking issue which is a greatexposure for individual banks in which trust evaporated overnight because of this; all the banksstopped doing business with each other.According to the above graphical representation, it has been assessed that major reasonbehind financial crisis was banks because they were created too much money. All the time abank offered a loan for creating a new money which shows in a financial crisis that banks wasget succeeded in created a huge sums of funds. By analysing the graph, it was clearly showedthat just in 7 years, banks was doubled the amount of money as well as debt in the economy. Infact, very little amount of trillion pounds that banks shaped in between 2000-2007 were offeredto business outside of the financial sector. For example; almost 31% was used by residentialproperty which resulted in maximization of house prices faster than wages. Apart from this,nearly 20% flows into commercial real estate such as; office buildings or any otherorganizational property. Moreover, almost 32% was offered to financial sector and same formarkets also which eventually imploded during financial crisis. In fact, only 8% of entire moneywhich was created by banks at that time was offered to business outside of financial sector.Further, rest 8% was utilized into credit cards and personal loans. 4
On 15th September 2008, one of the major announcement shaken the entire world that is;bankruptcy of Lehman brothers at midnight of Monday. Thus, it shows that financial crisis wasnow entered into an acute phase marked by failures of major American and European banks. Asa result, governing bodies of Americans and European Union tries to rescue distressed financialinstitutions. For example; emerging passage of Emergency Economic stabilization Act of 2008whereas infusion of funds into major banks in European countries. For various Americans, financial crisis becoming more worst in 2009 such as; in Marchplummeted of market more as well as panicking to those investors who was thinking thatworsened situation was over. It means, in April 2007 trust from financial system are breakingdown which was caused subprime Mortgage crisis. In the winter of 2008-09, G20 group whichwas recently formed engaged in coordinating with others for developing the nations and trying todefend recession 3. For example; cutting of interest rates, announce fiscal stimulus packages ofdistinct sizes as well as creation of electronic money with the use of quantitative easing. On 2ndApril 2009 in London G20 submitted that leaders of world committed to themselves to aroundthis much of “$5tn (£3tn)” fiscal expansion as well as extra almost $1.1tn of resources forsupporting International Monetary fund’s (Larry Elliott,2011). As , their main motive is tofacilitate global institutions for boosting the jobs, growth and to modify the banks. 9th may 2010 is a day when concerned was switched from private sector to public sector.At that time, IMF and European Union announced that they are going to offer financial supportto Greece. Another day of financial crisis was on 5th august 2011 was remembered as mostmemorable day when US hegemony was lost. Although, it was really terrible news for BarackObama as he was not delivered economic recovery. As a result, US were drowning in a negativeequity and foreclosed houses. Impact of global financial crisis on UKWhole world is getting influenced by this major fluctuation of finance market. Fromwhich UK was also affected very badly and major fall in the national economy. For example;economic downturn, unemployment, maximization of debt henceforth. In fact, number of authorsand specialist has expressed their opinions towards impact of financial crisis on UK. As per themajor article of Financial Express, it was clearly stated that crisis of 2007-2008 was the great3. Ivashina, V. and Scharfstein, D., 2010. Bank lending during the financial crisis of2008.Journal of Financial economics,97(3), pp.319-338.5
blunder after the great depression of 1930s because it was rendered almost 8.8 million people ofUnited states unemployed alone. Main target of this crisis are advanced countries such as; Unitedstates, Germany, United Kingdom and Hong Kong 4. From the above diagrammatic representation, it has been determined that advancedcountries are circulated around major trauma and encountered several ups or downs in between2005 to 2012. For example; UK is also effecting by the crisis in various manner as commonpeople of the nation are suffering from distinct day to day problems. As per the viewpoint of Gordon Rayner, 2008 “UK was encountered worst financialcrisis in decades” because of America latest corporate meltdown. However, one of the biggestmortgage lender of Britain’s is Halifax Bank of Scotland because it lost around 13% of its valueand scared that profit of the bank is directly influenced by global credit crunch. Moreover,Barclays and Royal Bank of Scotland wiped off their share price by 9%. Thus, Bank of Englandhas filled approximately £5 billion into money markets in order to restoring the confidence inbanking system. Although, this solution is not much enough to defend the economy forbecoming worse because predicators are saying that worst is yet to come. Bear steams which isthe night biggest investment bank across the globe was in the situation of getting collapsed due4. How badly 2008 financial crisis hurt US, UK, Germany, 2018. [Online]. Availablethrough<hhttps://www.financialexpress.com/economy/how-badly-2008-financial-crisis-hurt-us-uk-germany-this-1-chart-shows-it-all/1146819/>. 6
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