Development
♥ Banks that are ‘too big to fail’ – they’re not allowed to fail because it would have a global impact.
♥ Northern Rock bank failure:
o Bank run: everyone trying to get their money out of the bank
o Tried to grow quickly
o Borrowed large amounts of money at a time to lend
o Stopped being able to get money from the money market
o No assistance from the Bank of England
o Leaked on BBC News
o Government had to nationalise Northern Rock (“temporary public ownership”)
o Other UK banks found themselves in trouble (RBS, HBOS, Bradford & Bingley etc.)
o Caused bank regulation to change
o Several changes to the protection scheme
o New bank insolvency laws
o New capital requirements from the Basel Committee
o ‘Ring fencing’
♥ Problems in Europe:
o Greece, Ireland, Portugal…
o Survival of the Euro
o Might not last the next year
♥ Iceland had 3 massive banks across the globe
o Couldn’t regulate
o Big loans given out: British taxpayers had to bail them out
♥ Financial services
o Banks provide financial services (insurance etc.)
o Regulation: users of financial services are protected
o Levels of protection for customers has been successful
♥ Traditional picture:
o Banks, building societies, insurance companies, stockbrokers, pawn shops etc. were all separate
♥ 2012:
o Traditional lines have been blurred
o Digital cash schemes
o Insurance, internet payments
o Computerization and the internet has had a major impact
o International issues: financial transaction across the boarder
o Very little is just nationally based
o Commercial (clearing) banks now do investment products, insurance (life, car, property), pensions, telephone and internet services etc.
o Merchant (investment) banks
o Far fewer building societies, used to offer savings and mortgages for home ownership but can now provide a wider range of financial services
o Insurance companies now provide pensions and different types of insurance
o Supermarkets now provide financial services (as well as department stores and credit card companies)
o Investment products: now buy a share in investment trusts
o Protection for users: systemic protection (macro) – regulation and supervision plus liquidity assistance
o Protecting the financial system: regulation/supervision; liquidity financing by central banks; depositor protection
o Central bank in the UK is the Bank of England
o Central bank gives loans to smaller banks within the system
o Always worked until recent crisis
♥ Northern Rock bank failure:
o Bank run: everyone trying to get their money out of the bank
o Tried to grow quickly
o Borrowed large amounts of money at a time to lend
o Stopped being able to get money from the money market
o No assistance from the Bank of England
o Leaked on BBC News
o Government had to nationalise Northern Rock (“temporary public ownership”)
o Other UK banks found themselves in trouble (RBS, HBOS, Bradford & Bingley etc.)
o Caused bank regulation to change
o Several changes to the protection scheme
o New bank insolvency laws
o New capital requirements from the Basel Committee
o ‘Ring fencing’
♥ Problems in Europe:
o Greece, Ireland, Portugal…
o Survival of the Euro
o Might not last the next year
♥ Iceland had 3 massive banks across the globe
o Couldn’t regulate
o Big loans given out: British taxpayers had to bail them out
♥ Financial services
o Banks provide financial services (insurance etc.)
o Regulation: users of financial services are protected
o Levels of protection for customers has been successful
♥ Traditional picture:
o Banks, building societies, insurance companies, stockbrokers, pawn shops etc. were all separate
♥ 2012:
o Traditional lines have been blurred
o Digital cash schemes
o Insurance, internet payments
o Computerization and the internet has had a major impact
o International issues: financial transaction across the boarder
o Very little is just nationally based
o Commercial (clearing) banks now do investment products, insurance (life, car, property), pensions, telephone and internet services etc.
o Merchant (investment) banks
o Far fewer building societies, used to offer savings and mortgages for home ownership but can now provide a wider range of financial services
o Insurance companies now provide pensions and different types of insurance
o Supermarkets now provide financial services (as well as department stores and credit card companies)
o Investment products: now buy a share in investment trusts
o Protection for users: systemic protection (macro) – regulation and supervision plus liquidity assistance
o Protecting the financial system: regulation/supervision; liquidity financing by central banks; depositor protection
o Central bank in the UK is the Bank of England
o Central bank gives loans to smaller banks within the system
o Always worked until recent crisis