Banking System in the United Kingdom Essay Example | Topics and Well Written Essays - 2500 words

Banking System in the United Kingdom - Essay Example Investments will be conducted outside the fence and will be allowed to fail without the government stepping in. This report is predicted to be one of the biggest shake-ups in banking within the United Kingdom in a generation. This commission was formed by the United Kingdom in June 2010 by Sr. John Vickers and is comprised of two main proposals. One proposes a retail ring-fence for UK banking operations and measures to upgrade the loss absorption of UK banks. The second proposes improving issues affecting UK banking markets and focuses mainly on attention to financial stability. The following information will attempt to show how over reliance on the banking industry in the United Kingdom has affected the economy in an economic downturn or recession. It also will show what effects deregulation has had on the United Kingdom economy and the banks. It will also delve into the economic downturn, the history, its effects, and what is going on now. And finally how can the United Kingdom avo id a double dip recession. ... also says that it is necessary for the state or international entities to take part because business forces and normal banking activities are not able to provide the required funding. This thought can be justified if there is evidence present that shows market failure or any deliberate government policy that contributes to this sector. This gives the impression that dangers are present regarding how banks compete. Banks compete unfairly on terms of deposit, misdirected resources in any economy, and build losses that eventually have to be supported by the public through government budgets (Latter 1997). Latter points out that as a matter of principle, it is better to give support to regions of the economy in as clear means as possible and with as little damage as possible to the forces driving the market. He further adds that this could mean subsidies might come directly from the fiscal budget or interest rate subsidies rather than less visibly through the bank itself. All banks shoul d be able to compete for business and control their own subsidies (Latter 1997). Causes of the banking crises are continually being debated. Several have been attributed to the structure of the banking system, while others have been attributed to macro/micro forces or regulatory factors. Others include harmful strategies of specific banks, operational failings, and fraud. When dealing with macro forces, triggers can includes the collapse of asset prices in real estate, a sharp upheaval in interest rates, or a sharp fall in the exchange rate. Another trigger could be a sudden slowdown in general inflation or the beginning of a recession. Banks have typically prospered in a high inflation environment. Another problem that is noted is sharp shifts in related pricing, or dropping of subsidies