1.1 Research Problem And Background
Introduction to the Global Financial Crisis
Economic recession is one of the most dreaded experiences of any economy. It influences the fundamental structural institutions in an economy, particularly banks and private businesses that are basic to economic growth and development. The prejudicial thing that comes with the economic recession is the fact that the financial outlook is surrounded by very high degrees of uncertainty. When an economy dips into recession, it needs very comprehensive fiscal and monetary policies, whether contractionary or expansionary, depending on the case, which could help it pull out of the recession.
One of the essential elements of an economy that is under pressure at such difficult times is the financial services sector. The Global Financial Crisis is considered one of the most difficult financial times that the entire world has ever been through. The effect went far and wide because the world, has through globalization, been united. The adverse impact on the economy of one country is felt in various degrees in different countries. The Global Financial Crisis that arose in July 2007 was indeed a turning point for the global economy at large. It drastically affected financial services in many countries all over the world.
Related Posts
- How Tata Motors’ acquisition plans backfired amidst the global financial crisis | Case Study Analysis
- Strategies for Optimizing Superannuation and Retirement Planning | Financial Analysis Example
- Evaluating Al Jazeera Steel’s Financial Position | Financial Analysis Example
The Makeup of the Global Financial Crisis
Extremist misery in various commercial markets in 2007-2008 turned into a Global Financial Crisis following the filing of Chapter 11 by Lehman Brothers in 2008. Lehman Brothers Holdings was a global footprint of the financial service sector. It was established as the 4th largest US financial firm that dealt with investment banking, investment management, trading, private equity, research, fixed income sales, and private banking services. [1] As such, the world experienced the most severe economic performances since World War II.[2] Lehman Brother’s bankruptcy directly influenced the global financial market with multiple aftershocks felt globally leading to varied cross-border and cross-entity interdependencies.
Certainly, the consequences of the bankruptcy of Lehman Brothers intensified because of the globalized legal structure. The crisis began in the housing market in America. The price of houses peaked in 2006 followed by a drastic drop by more than 30 percent recording historic mega deterioration ever since the 1930s in the US. The household debt amplified substantially over the previous years leading to the sub-prime lending, that is, giving loans to low-income people.rs. Meanwhile, the challenges of liquidity in the market made it compulsory for central banks to offer liquidity in many arrangements.
Nonetheless, losses and problems constantly mounted for the duration of the decline of 2007, and the central banks drew from five major regions of currency, including UK and US coordinated mechanisms established to curb the pressures on interim funding of the market. [3] Throughout the beginning months of 2008, encounters in the temporary finance market promoted the Northern Rock nationalization in the UK.[4] However, in the US a detrimental scarcity of liquidity at Bear Sterns encouraged JP Morgan Chase to ascend to purchase Bear Sterns in the transactional assisted by authorities in the US.
The 2007 financial crisis resulted from the credit crunch specifically when uncertainty took a toll on investors in the United States about sub-prime mortgages. The consequence of this was the liquidity crisis felt all over the world.[5] The US Federal government decided to remedy this particular situation through the injection of an amount of capital described as very large, into the financial markets. The main objective of this decision was to address the problem of liquidity. The monetary policy adopted by the United States government proved to worsen the economic situation concerning stock as observed one year later when stock markets all over the world saw a crash.
Nevertheless, the stock markets also became highly volatile at the same time.[6] The confidence of consumers is described as one that hit rock bottom since each consumer all over the world anticipated a worse economic situation. As demonstrated by the fact that they did all that was in their reach, to be able to tighten the economic belts with the uncertainty of what the future held when it came to matters of economic crisis. The implications of the crisis on financial services in the United Kingdom form the thesis of this paper in particular the effects of the crisis on consumers.
The EU alongside the emerging markets never meant to be shaken due to their strong growth domestically. Prices of commodities went sour and Europe experienced increased inflation, forcing central banks to further increase interest rates. Following a year of enormous sub-prime lending extension, which was also securitized by the establishment of financial instruments and financial assets such as the mortgage asset value fell sharply when the housing market worsened.[7] The process of securitization based on illiquid asset and financial engineering aimed to transform into security. These developments promoted major losses in credit and exposed the banking business alongside mortgage institutions in the US and UK. [8]
By the end of 2008, it clearly emerged that mortgage loan securitization was a milestone for banks and other asset holders. The 2007/09 global financial crisis hinted at consumer protection importance through financial securitization to offer lasting stability to the global economy. According to Vice Chairman Martin J. Gruenberg, the rapid growth of household lending promoted a financial crisis. Therefore, financial institutions responded by transferring their exposures to households leading to further risks, including foreign borrowing and instability in interest rates. Therefore, securitization of the household credit was effective because it spread the weakness in household finance to the entire world financial system.[9]
Financial downturns in the US housing market weakened the assurance in the market in the two enterprises sponsored by the government of Freddie Mac and Fannie Mae to operate. Subsequently, the regime of the US took control of the enterprises in the summer of 2008. Later, Lehman Brothers filed Chapter 11 prompting the global loss of assurance in the entire fiscal system. Meanwhile, TED-spreads (T-Bill and Eurodollar) emerged to extraordinary level asset prices fallen, and the credit market expanded. [10]
The TED spreads is the transformation in the middle of interbank loans and interest rates in short-term debt to the US government. TED spreads used as an indicator of perceived credit risk to the global economy because the T-Bills are free of risk and the Eurodollar reflects the commercial banks’ lending credit risks.[11] Institutions in need of cash forced to sell their assets at “fire sales price” leading to a greater depression of asset prices, instigated more sales, and further deflation of asset prices.
The Lehman Brothers
[12]The Lehman Brothers records indicate a humble origin tracing commencing as a small general store established by a settler from German, Henry Lehman in Montgomery in 1844. In 2008, on September 15, Lehman Brothers filed for bankruptcy. The company had assets worth $639 billion and $619 debts and this made the bankruptcy of Lehman Brothers the higher and worst of all times because its assets surpassed those of historical giants of bankruptcy, including Enron and WorldCom.[13] Lehman Brothers were number four in the US investment bank is pecking order of the financial sector during its collapse, with approximately 25,000 employees globally.
Therefore, the demise of Lehman Brothers became the largest U.S subprime mortgage-lending victim to a financial crisis that affected the globe in 2008. Lehman Brothers’ collapse became a seminal event intensifying the 2008 crisis and further contributing to the loss of $10 trillion in the capital market from global equity markets.[14] The US housing boom, in 2003/2004, was ongoing and the Lehman Brothers attained five mortgage lenders, such as Aurora Loan Services and subprime lender BNC Mortgage leading to capitalization in Alt-A loans. [15]
The acquisitions of Lehman Brothers initially appeared prescient because the revenue records in their real estate investment provided returns in the unit of investment market to outpour 56% from 2004-2006.[16] This was a faster business growth compared to other businesses, including asset management and investment banking. Therefore, the firm securitized $146 billion worth of mortgages in 2006, indicating an increment of 10% from 2005. [17] The firm later reported a net income record of $4.2 billion $19.3 billion revenue in 2007. The firm experienced a major miscalculation and the stock records prices were $86.18, providing the company market capitalization of $60 billion. [18]Yet, the US housing market, in the first quarter of 2007, had started becoming superficial due to defaults resulting from the increase in the subprime mortgage.
The historic credit crisis emerged in mid-2007 and the Bear Stearns’ hedge funds letdown fueled the sharp decline of Lehman’s stock. Earlier, the firm had eradicated 2,500 jobs created by the mortgage and closed the BNC unit that is electronic test equipment engineered by Berkeley Nucleonics Corporation. The BNC became a leading subprime mortgage lender because it originated more than $14 billion worth of home loans.[19] While the US housing market made remedies, Lehman sustained as a mortgage market monopolistic power. In 2007, the firm underwrote additional mortgage-backed securities resulting in a cumulative amount of $85 billion portfolios equivalent to four times the equity of shareholders.
The stock of the firm later rebounded but the firm failed to trim its mortgage portfolio that retrospectively turned to be its last chance. The continued financial blow put Lehman to its deathbed. The crisis led to a 45% fall in stock and 66% credit-default spike swapped debts of the firm. The short-time creditors cut their credit lines while its hedge fund clients began to withdraw. [20] The firm lost $3.9 billion leading to its collapse that roiled the global financial markets, owing to the magnitude of the firm alongside its status as the US economy and global economy financial player. The liquidation commanded more than $46 billion of its capital market share disappearing. Likewise, the collapse of Lehman catalyzed the Global Financial Crisis.
Case Study of the UK housing market
The UK housing market had experienced substantial growth preceding the Global Financial Crisis as the prices of houses reached one of their highest levels in the history of the UK. However, this changed following the impact of the financial crisis over 2007/2009. Nonetheless, financial deregulation encouraged the banks and insurance firms to enter the mortgage market hence reducing the market share of building societies.[21] Therefore, the UK housing sector experienced a substantial increment in mortgage debt in the 2007/2008 period.
The phenomenon is supplemented by lower short-term real estate interest rates and relaxed lending constraints applied to new mortgage products. [22] As a result, most holders of mortgage acquired their houses resulting from the high value of mortgage loan instruments. Further, the cumulative debt to GDP, loan to value ratios, and proprietor tenancy became all high in the UK. This made the housing market further unstable resulting in a significant increase in the prices of houses in times of economic prosperity.[23] Likewise, the changes in interest rates significantly impacted the UK mortgage market concerning terms of cost of borrowing as well as the affordability of mortgage products.
The housing mortgage led to harsh consequences to the consumers in the UK because the number of households entering into negative equity after the Global Financial Crisis constantly increased.[24] Besides, many houses have been repossessed because the UK Act permits the creditor to repossess the entire unsettled loan from the borrower provided he be unsuccessful to encounter the financial responsibilities within a specific time. [25] Also, the UK mortgage market led to a shortage of supply of housing. The lack of land coupled with the impact of the planning system was extremely restrictive and fueled the shortage of housing supply.[26] The reduction in the number of houses constructed annually resulted in the reduction of housing stock, especially in Manchester and London among other high densely populated areas.[27]
Impact on the UK Economy
UK consumers are essentially affected by the sub-prime crisis and the housing bubble. The value of homes plunged greatly and at the end of the day; home equity suffered greatly. This is because homeowners with mortgages found it very difficult to meet their financial obligations of repaying their mortgages.[28] In essence, the number of defaulters of loan payments inflated heavily. This meant that the defaulters found themselves with negative equity. Meeting their loan repayment obligations proved to be a tall order. The banks suffered a great deal. This is because they took the initiative of repossessing the houses if an individual was unable to repay his or her loan. As a result, they sold their repossessions at a value lower than the present value of the outstanding loan. The unfortunate eventuality of this is that they incurred huge losses because of repossession. This is essential, what created the housing burst.
At this point, it is vital to note that banks form a major part of financial institutions all over the world.[29] As a result, other financial services offered by commercial banks to consumers are adversely affected. The net effect of this is that consumers paid the price of the Global Financial Crisis. The banks faced a huge economic crisis for liquidity, it is for this reason that giving, and receiving home loans by the banks drastically affected. The collapse in terms of housing created significant losses as it led to the credit crunch that is commonly referred to today as the mother of the Global Financial Crisis. [30] Nevertheless, economic and financial scholars have postulated the remedy to this situation as a strict regulation that could help avoid unscrupulous lending.[31] Again, the effect of the crisis on consumers revealed.
Governments Guarantee the Financial System
On the road to the global financial crisis, market experts professed the presence of an understood assurance from the U.S government.[32] It assumed that in case a systematically significant financial company becomes unsuccessful government uses public reserves to fund-save the organization. [33] Certainly, this premise is derived from the experiences from the initial intervention of the US government. Therefore, there is a creation of a new phase in the US economy and that of the entire world markets behind.[34] It is what drove most governments around the world to intervene in the situation by attempting to rescue simply the major financial institutions with the worsening situation in terms of housing. Most economies indeed suffered a great deal with the collapse of the Lehman Brothers. The United Kingdom’s economy was not an exception. Financial institutions and consequently financial services drastically affected the country as it faced very serious issues regarding liquidity.[35]
Many governments consequently came up with comprehensive plans to address the economic situation in the world. Some notable decisions that were made were that of the Australian and the United States governments. The latter proposed a 700 billion dollar rescue plan that did not however come to pass as it was rejected.[36] Consequently, countries found other ways to address the Global Financial Crisis. The dollar and the euro proved to be the best avenues to economically viable results. In fact, the two currencies were seen as tailwinds since it was postulated that they were the safest alternatives to the rescue of the ailing housing market as well as the ailing stock market. Investment in gold and bonds also took a toll on most investors. This was between September and October of 2008, barely two months after the Global Financial Crisis seemed to have changed for the worst. Hence the apparent need to be protected as it will be noted later in this analysis.
The Post-Crisis Period
The government of the US, under the leadership of President Obama, adopted some fiscal policies to address the situation during the Global Financial Crisis. This was concerning government expenditure as the President proposed a one trillion per annum federal spending budget.[37] The Australian government, on the other hand, sought to increase the liquidity ratio in the country particularly by handing out cash to taxpayers as well as increasing government expenditure specifically on government long-term projects. This was a measure that was adopted by many other countries. In detail, the Australian government spearheaded the transformation by establishing industry-led insurance inquiries and complaints body that aimed to compensate the public with heavy regulation.
Also, the government of Australia resorted to interest rate caps for loans given to consumers as a reaction to pilling public pressure.[38] The giving out was aimed at increasing the rates of spending by consumers, and this would eventually increase the liquidity. Seignorage, which refers to the printing of money, was also adopted by other countries to increase the liquidity ratio. Such measures made the two countries, that is, Australia and the United States of America to insulate its economy from the Global Financial Crisis.[39] This did not however imply that the two countries exempted.
One may ask the reason as to why the United States seemed to form a major reference in the Global Financial Crisis. [40] The reason is that the US is the major international financial system guarantor. It provides Dollars used as a currency reserve as well as an international medium of exchange. It also contributes greatly to the financial capital splashed worldwide looking for higher yields. As much as the other nations of the world might not concur with this, a financial crisis in the US often takes a global hue.
Effect on Consumers
The fact that the Global Financial Crisis of 2007 -2009 wreaked havoc all over the world was in itself enough to call for the protection of consumers. In any case, they are directly and indirectly affected by the liquidity problem that faced many countries across the globe. The irresponsible lending by banks left most borrowers struggling to pay their loans as they could barely meet this financial obligation. Towards the end of the crisis, that is, in the year 2009, most of the policies adopted during this two-year period began to show the consequences of their implementation.[41]
For instance, the liquidity problem addressed by injecting more money into some of the economies all over the world resulted in excessive liquidity as well as extremely flawed monetary policies. Notably, during this period, there was rampant misuse of a couple of financial operations which resulted in the widespread deterioration of risk control[42] Subprime mortgage loans, highlighted earlier also had their due payments extended and this became worse when the housing market bubble burst and the prices of houses went below the then-current rates and defaulting set in.
Some of the factors that gave way to irresponsible lending were structured finance, securitizations as well as credit derivatives such as the extension of due dates for payment.[43] This is because less stringent measures seen in financial institutions only allowed the loan originators to transfer to investors the risks accompanied by loans. This was in the form of asset-backed securities. Investment is a basic part of the National Income model, and it is for this reason that these effects fell to the consumer of financial services. The United Kingdom, together with the United States of America was among the main countries affected by the price and housing bubbles. [44] As stated, this greatly fuelled by the sub-prime mortgages advanced to borrowers. The defaulting by such borrowers almost brought down the entire financial system.
The flip side of The Global Financial Crisis was the only side to it. However, the fact that the discussions on this particular subject to date have so much been concentrated on how the risks to the financial system could be averted as opposed to how vulnerable products, as well as the users of financial products, can be cushioned against some of these effects. In essence, the discussions centered more on the prevention of such a financial crisis again in the future. This is inclusive of effects that came with the crisis and among the effects are the effects on consumers. However, recent emphasis has been on the regulation of banks when issuing out loans since it is indiscriminate issuing out of loans which greatly contributed to the Global Financial Crisis.[45] This has been through the government’s insistence on issuing out loans by banks based on very prudent decisions. This is through various measures such as increasing capital requirements.
Most governments have also concentrated greatly on the ways through which some of the financial institutions considered too big, to fail should not be allowed to fail. It is thereby critically important to note that very little attention is paid to addressing the issues related to consumer protection. The importance of addressing this particular subject cannot be underestimated since the Global Financial Crisis critically affected consumers especially when sub-prime mortgages sold to borrowers who in a real sense were not able to afford them. The issue of consumer protection is, therefore, one that needs to be addressed currently. [46]This does not however imply that no measures since adopted to address the same. More importance can also be attached to this issue because it is the defaulting by some very borrowers that led to the unfolding of the events of the Global Financial Crisis. This is exactly how the consumers of financial services are affected. It implies that not much is done to address the same.
The effects of Europe’s various economic segments were as severe as they were in the United States sue to close linkages with the US financial sector, robust effects of trade, and in given cases, misbalancing of the macroeconomy that started to correct. Nevertheless, effects varied considerably flanked by countries. The United Kingdom was among the countries in Europe that were worst hit Europe. The United Kingdom could not have insulated from this major development. The relationship between Europe and America, in other words, helped Britain a great deal to come out of this Global Financial Crisis. [47] Ordinarily, this Global Financial Crisis meant to have remained a crisis of governments and the corporate entities that were involved, that is, the banking industry, the mortgage houses, and lenders.
Remarkably, the US Financial Crisis Inquiry Commission in 2009 stated that this Global Financial Crisis was avoidable, and the failures are attached to the failures of the banks. [48] The failure of financial institutions, including banks and insurance companies in the United Kingdom, affected the housing market as it resulted in evictions as well as foreclosures that in turn resulted in prolonged unemployment in Britain. Accordingly, the reluctance of authorities to reclaim assets led to the escalating of housing finance program costs, henceforth stagnating rates of mortgage severely high for low-class individuals.
The emergence of discriminatory policies of financial practices against poor ethnically divided society lending also led to increased levels of poverty and poor UK banking systems.[49] [50]Mortgage-Backed Securities (MBS) refers to a debt obligation with cash flow backed through mortgage interest payments of pool loans, particularly in residential houses. Furthermore, Mortgage-Backed Securities established in the US acknowledged as a highly important innovation in the financial system in American history.[51] Founded on risk management, however, it possibly made financial debtors exposed to liquidity and losses in economic recession havoc.
Meanwhile, throughout 2007 when BNP Paribas froze its investment funds; the US subprime mortgage crisis promoted the Global Financial Crisis. Moody’s and Standard and Poor’s, credit rating agencies, demoted the ratings of 399 and 612 subprime Related Mortgage-Backed Securities (RMBS) respectively.[52] Consequently, stockholders went nowhere to be found in the US housing economy and market, leading to the US stock market fiasco.
Furthermore, the Global Financial Crisis led to a downturn in terms of economic activity and made the United Kingdom economy and that of the entire world at large dip into economic recession. The crisis also contributed greatly to the European sovereign-debt crisis.[53] This crisis was the liquidity crisis that eventually trickled down to the consumer. This financial crisis in the United Kingdom, moreover, triggered by the complex interaction of some of the policies that highly encouraged homeownership and the provision of easier access to loans.
The United Kingdom, as a result, saw the theory of the escalation of the prices of houses taking a toll, as well as trading policies that were indeed questionable about their contribution to the British economy. [54]With all this said and done, another report from the United States, that is the Levin –Coburn Report summarized the causes behind this Global Financial Crisis as a failure of prudent regulation by the banking industry, high risks, complex financial products as well as undisclosed conflicts of interest. [55]
Protection of Consumers
This research paper seeks to give a critical analysis of consumer protection particularly after the Global Financial Crisis reviewed above. The paper will address this research question through the analysis of the fate confidence of the consumers before and after the Global Financial Crisis to be able to reveal the apparent need for consumer protection after the crisis. [56] The plight of consumers particularly in financial services reviewed to give a much deeper insight on the same.
1.2 Purpose of the Study
The research paper will focus on the case study design with the United Kingdom being the case study. The effects of The Global Financial Crisis went very far and wide. Consumers of financial services were chief on the list of victims. The United Kingdom, through the authorities concerned, has made efforts to cushion these particular victims. It is, therefore, imperative to understand the state of consumer protection before and after the crisis. Regulation, through legislation by the responsible arms of government, seems to be a major way of averting the same instance. The paper will review some of the major regulatory measures by the United Kingdom that were made in a bid to cushion the consumers of financial services from the same plight.
1.2 Aims and Objectives of the Project
This research paper will critically analyze the consequences of the global crisis particularly in the United Kingdom in the provision of financial services and its impact on consumers. To understand the effect of the crisis on consumers, it is primarily very important to understand what the Global Financial Crisis was all about and how the effects of the crisis linked to financial services consumers and particularly the protection of consumers before and after the crisis. As such, the objective of this project is to come up with an academic work that gives a comprehensive analysis of the regulatory and legal framework that acts as a blueprint in guiding the process of consumer protection in the financial services sector in the United Kingdom established after the Global Financial Crisis. The following are the specific objectives of this project:
(a) To examine the effectiveness of the current regulatory framework on the protection of consumers of financial services
(b) To compare the current regulatory framework with the previous one to weigh the effectiveness of the former.
(c) To examine whether the current regulatory framework has led to consumer-driven responsible behavior in the financial industry in the UK
(d) To determine the plight of consumers following the Global Financial Crisis of 2007-2008
(e) To establish whether the current regulatory framework has addressed the gaps and weaknesses that led to the plight of consumers following the Global Financial Crisis.
1.3 Relevance of the Research
This research is relevant to the study of the effects of the Global Financial Crisis on consumers since it highlights the major plight of consumers before and after the financial crisis and the United Kingdom measures taken in the protection of these consumers. The research is also relevant since it establishes the failures of the US so far and provides some of the plausible ways in which the US can move to address the same problem through the provision of recommendations for the concerned parties. It focuses on the inherent need of consumers protected in the entire course of any transactions in the economy regarding the adverse effects of the most recent Global Financial Crisis.
The research establishes some of the major causes of the Global Financial Crisis not addressed as well as the effects substantially addressed. Furthermore, the research is also relevant since it reveals the need of the consumer in the financial industry protected and the consequences as well as not implementing some of these measures considered. Besides, the study also determines the need for the United Kingdom to win back the lost confidence in the financial industry in the US. As a result, the research aims at shedding more light on the issue of consumer protection and thereby giving a much deeper insight on the same to provide global knowledge significant to the large sector of consumers in both the United Kingdom and the U.S
1.4 Research Questions
This research paper can address some of the issues highlighted above comprehensively through a couple of research questions. The following are some of the research questions that the research seeks to answer.
(i) What was the plight of consumers in the financial industry during the Global Financial Crisis?
(ii) What were the national and international frameworks that protected consumers in the financial industry in the United Kingdom?
(iii) What were some of the weaknesses of these frameworks?
(iv) What are the current national and international frameworks that provide for the protection of consumers in the United Kingdom? How do the two frameworks compare? i.e., consumers better protected in the current framework as compared to the previous one?
1.5 Research Methodology
The best way to examine the effectiveness of the current regulatory framework concerning the protection of consumers in the United Kingdom financial industry is through an exploratory approach. This is the approach adopted in this particular study. The flexibility of this approach permits a continuous re-adjustment of focus and change of direction based on new information if any will be required. The exploratory approach is supported by an inductive approach since the research uses observed data and facts to settle at tentative hypotheses. The research investigates the legislation and regulations within the industry in question. This approach totally supports this objective.
The research methodology adopted a mixed-model research method that combines both qualitative and quantitative data collection techniques in its analysis. This method interchanges both techniques and analyzes, with each building on the strengths as well as the procedures of the other, consequently negating possible weaknesses from single technique analysis.
Structure of the Project
Chapter Two: Review of the Current Available Literature
This chapter gives a detailed literature review of the existing material on the topic. This is through both the theoretical as well as empirical literature review. It essentially reviews some of the texts related to the subject under discussion. The theoretical literature review will analyze postulations in summary while the empirical literature review will be more of professional reading. This chapter is indeed very important in this research as it acts as a guideline for this particular paper. This section of this paper will determine what will be discussed in this paper as it will reveal the gaps by other scholars on this topic.
Chapter Three: The Impact of the Global Financial Crisis on Consumers in the United Kingdom
The chapter assesses the impact of the Global Financial Crisis in the United Kingdom. The origin, as well as the development of the crisis, presented here in detail. The crisis reported the most severe economic crisis after The Great Depression.[57] The chapter also sheds more light on the fact that this crisis originated in the United States yet ended up affecting the European continent, particularly The United Kingdom. The Chapter also introduces the plight of consumers during and after the crisis and the inherent need for the same to be addressed.
Chapter Four: The Regulatory and Legal Framework Guiding Consumer Protection in the Financial Sector in the United Kingdom
The welfare of the citizens particularly as consumers in the financial industry seemed to be one of the major issues during and after the Global Financial Crisis. This chapter, therefore, seeks to establish some of the ways through which the United Kingdom has adapted to address the same as well as the effectiveness of the measures since been adopted. Regulations made in the interest of consumers have since been adopted but with minimal changes seen. Further regulations are approved, and this is what the research seeks to address comprehensively in this particular chapter.
Chapter Five: Conclusions and Recommendations
This chapter concludes the entire analysis. The research findings are presented in this chapter. The recommendations are then suggested with key references to the results of the research.
CHAPTER TWO: REVIEW OF THE CURRENT AVAILABLE LITERATURE
This chapter gives a detailed literature review of the existing material on the topic. This is through both the theoretical as well as empirical literature review. It essentially reviews some of the texts related to the subject of discussions. The theoretical literature review will analyze postulations in summary while the empirical literature review will be more of professional reading. The section of this paper will determine what will be discussed in this paper as it will reveal the gaps by other scholars on this topic of interest. At the same time, the chapter will help identify whatever has already been researched by other scholars to build the research paper to an even more objective paper.
Financial Regulation in the UK Before the Crisis
The financial regulatory structure in the UK has undergone an organic evolution. Historically, the aftermath of the 20th century saw the establishment of a comparatively centralized UK financial industry with elements of self-regulation.[58] In the wake of the most distressing the historic financial crisis of the UK, there are various attempts of moving fits and starts to reform the financial regulatory system. Regulatory reform and tougher law enforcement of the current rules are both significant following the Global Financial Crisis. Before the crisis, there was a greater consensus on the policy of financial regulation in official policymaking circles.[59]
The market powerhouses joined by nearly 80 upcoming economies during the crisis moving numerous speeds to Basel II that entailed the Revised Capital Accord of the Basel Committee on Bank Supervision to progress on Basel I of 1988.[60] Major Banks and economies had the initial pillar of the financial regulatory Accord meant to future the use of international rating commercial banks models. However, individuals that lacked data and skills for the model-based Accord implementation used the assessment of credit rating organizations (CROs). The approach depended more on models of CROs and banks that promoted a revolution in risk management favoring greater quantification. The Basel Committee alongside some regulators took credit for helping along this process, yet it references the hard work of former Bankers Trust and JP Morgan, thus predating the foray of the Basel Committee. [61]
Mainly, the Basel II envisioned as the supervisory-led system and the Basel Committee’s “Core Principles for Effective Banking Supervision” alongside the supporting documents discuss every requirement for supervisors, including banking information. [62] The major document claims that operational economic discipline is a prerequisite for active administration. However, it fails to guide how the former expected to develop. Devastatingly, supervision emphasized at the micro-prudential level, anxious of the stability of the banks grounded on individual institutional analysis while ignoring systematic concerns.[63] This supervisory orientation made it plausible for the supervisors to investigate individual banks. The banks had sold off their risky exposure and processed by its absence from balance sheets of banks. However, it failed to address the concern of whether these risks could come back to banks and the broader financial system.
As established that this micro-level financial regulation procedure permeated the sector. In the history of the Bank-Fund Financial Sector Assessment Program (FSAP), the World Bank was progressively making determinations to supervise the financial schemes using an assorted team of financial experts to expound on the approach taken to attain and operationalize it with an examination of an East Asian country. [64] The adopted approach focused on the analysis of banks, pension funds, and insurance companies among others not left to constricted experts in the sector. Rather, it investigated and concluded by the wide-ranging assembly questioning the consequences of developments in every subsector and the entire financial system.
The crisis emerged in some developing countries prompting the IMF and World Bank to develop a formal program of assessment. Nearly the same time, the G-10 among other individuals supported the establishment of standards wave well further than banking, ranging from auditing to accounting to securities market regulation, insurance, payment systems, and pension funds. [65] Thus, the FSAP program emerged as an umbrella for each of these specialists, and the further establishment of the UK Financial Services Authority (FSA) harnessed the synergies of various specialists.
Reform of Financial Regulation Before Crisis
The emergence of New Labor to power promoted various financial regulation reforms, including the use of monetary policy to the Bank of England.
The Institutional Design of Financial Regulation
The establishment of the Financial Services Authority (FSA) as a successor organization to the then existing Securities and Investment Board assumed the supervisory role.[66] The role of FSA was fully defined after the passing of the Financial Services and Markets Act 2000. [67] The Act gave FSA the responsibility for overall supervision of financial markets, reduction of financial crime, consumer protection, and maintains confidence in the financial system. Therefore, this implied a long list of roles:
• To regulate the taking of deposit, asset administration safekeeping, dealing in, and investment management alongside the provision of advice.
• To establish a single authorization regime for all activities regulated
• To establish the Financial Service Compensation Scheme, building societies, merging the previously separate schemes for banks, securities, and investment firms, and insurance companies.
The New Labor government developed a tripartite system of bank regulation constituting the Bank of England, FSA, and HM Treasury. However, the FSA was given the explicit responsibility for micro-prudential bank regulation, yet it was not clear whether its role of maintaining confidence in the financial system amounted to a macro-prudential function.
The Impact of the Global Financial Crisis
There are several scholars across the globe, which have tried to explain the impact of the Global Financial Crisis on consumers and consumer protection strategies and policies that followed thereafter.[68] However, only a few of them have limited themselves to the case study of the United Kingdom. However, most of them seem to have one school of thought and as such united on one common factor: That the regulations made by most governments, including in the United Kingdom are perfect.[69]
The only problem that arises is the applications of these regulations. A good example of one such scholar is Professor Adrian Blanaru of the University “Petre Andrei”. In his article, Financial Products and Consumer Protection in Conditions of Crisis, he clearly highlights the fact that the faulty financial system had its genesis from the regulations in the same sector that were as well faulty. The consequence of this was a Global Financial Crisis which later became contagious. The author also highlighted the fact that stronger regulations in the financial market are a prerequisite if any fruits are to be a bore on the same. With this, it implies that the laxity within the authorities concerned has indeed contributed significantly to the current situation in the market.
This has been attributed to the fact that such laxity puts the clients’ capital at risk. This client is the same consumer of financial services that the same regulations were put in place to protect. It thereby beats logic and hence the question of the effectiveness of these regulations and policies comes up. While this author has critically analyzed the examining the situation in the current market, very few have gone deeper to put the two economic periods under comparison, that is, the period before the Global Financial Crisis and the period that came after. This is what this piece of research seeks to examine to fill the gap. [70]
Previous research on consumer protection and the global financial crisis has underscored greater degrees of regulatory measures. Before the Global Financial Crisis, the regulations seemed too lenient and hence the financial sector was faced with very serious financial issues such as the housing bubble and the liquidity problem. Concerned authorities, at the same time, have been blamed for the poor implementation of the same regulations at that time.[71] As a result, these studies on consumer protection and the financial crisis have raised another very important issue. One would want to ask, ‘Exactly what is being done currently to avert this similar situation?’
This is because if such laxity leads to considerably great and significant adverse effects on the individual as well as global economies, what then, is being done to ensure that the same does not happen again? There definitely needs to be a strategy to curb the same if there is any concern whatsoever. A clear look at the financial market today reveals that indeed not much has taken place to ensure that the financial industry does not suffer such a huge blow. In any case, the industry is still characterized by high degrees of uncertainty about the eventualities of the sector. There is surely more than meets the eye. A keen look, however, reveals the weaknesses of the same regulations concerning their implementation. One more thing becomes crystal clear, however: there is the need for the imposition of a much more rigorous control from all government agencies that are charged with the responsibility of enforcing regulations in the market.
Traditional research on the same topic has also revealed one basic aspect that seems to draw the attention of many researchers as well as scholars. [72]This is the fact that many countries, all over the globe, united on the fact that there is an apparent need for a minimum regulatory standard to be implemented. This is to act as a standard for the implementation of some of the regulations that have so far been reached in this particular sector. The same unity of mind also implied that the creation of a minimum standard was vital since it would aid in counteracting any sort of negative effects, whatsoever of financial services on global economic growth and development. Still, on matters of regulation, it is also worth noting that the research done on the topic is somewhat insufficient since the role of market forces in the implementation of the regulations has not been identified. Market forces of demand and supply play a very major role in influencing the extent to which the regulations can be implemented especially in a free market with minimal government intervention.
The main reason behind this major postulation can be attributed to the fact that in a free market, the forces of demand and supply interact very freely. This implies that there are bound to be a series of financial convulsions especially in the events that these two market forces are on their extremes, that is, when one, say demand, is really high, and the other, say supply, is considerably low. [73]Conducted research on this topic, as a matter of fact, does not highlight that these market forces can only be controlled in one way that is the imposition of stringent regulations. In other words, even in a free market whereby the forces of demand and supply are conditioned to interact freely; there is the inherent need for government intervention to remedy the situation.
Zero government intervention could lead to a worse financial crisis compared to that that engulfed the Global Financial sector in the year 2007.[74] To put matters into perspective, we could analyze the situation that arises in the existence of a monopoly market. In this market structure in which there exists only one seller of a good or service, for example, a certain financial service, the fact that discrepancies could arise goes without saying. The monopoly is a price leader and as such, he has much influence on market prices. An absence of regulations in such a market could put the entire market at risk.
Hence, the apparent need for government intervention. The research that has been conducted on this topic, both empirical and theoretical, has built the entire body of knowledge.[75] It is, however, worth noting that there still exist certain gaps in the research as highlighted above. This research study seeks to fill these existing gaps to give a comprehensive study on the thesis.
CHAPTER THREE: THE IMPACT OF THE GLOBAL FINANCIAL CRISIS AND POST-CRISIS REGULATION
The chapter assesses the impact of the Global Financial Crisis in the United Kingdom. The origin as well as the development of the crisis presented here in detail. The crisis is reported as the worst economic crisis after The Great Depression. The chapter also sheds more light on the fact that this crisis originated in the United States yet it ended up affecting the European continent, particularly The United Kingdom. The Chapter also introduces the plight of consumers during and after the crisis and the inherent need for the same to be addressed. The Global Financial Crisis prompted action as well as analysis on both national and international levels.
However, the regulatory framework seems to have an approach whereby it is tackling the weaknesses of the regulatory framework as opposed to the implementation of the new regulatory measures. This is owed to the fact that it is actually weakening the foundations in the financial sector that led to the Global Financial Crisis. [76] The reasons identified as responsible for the crisis were; uncontrolled liquidity which led to imbalances, lack of accountability of concerned parties, lack of public knowledge, construction of poor financial instruments as well as high leverage. It is the weakening of these foundations that led to the regulatory framework that was put in place.
Post-crisis Financial Regulation
The severe financial crises in olden times, the UK and US governments are moving swiftly to adjust the regulation of finance. [77]Changes in the financial regulatory approach, including harder existing rules implementation adopted following the supreme current crises. Notably the U.S. Savings and Loans (S&L) crises, the Great Depression as well as other financial crises that of other emerging markets. The post-financial crisis of 2007/8 denotes one of the most severe in the living memory, and its consequences are being felt even today.
The EU ramifications, in particular, have been acute. Its response, numerous legislative proposals has promoted the radical transformation of the EU financial sector regulatory framework. [78] The institutions of the EU, including the European Parliament, the Commission, the European Council, and the Council of the European Union have been subjected to substantial tension by these events. Notwithstanding the magnitude of the roles they are mandated concerning responding to the crisis, the institutions have done a considerably good job.[79]
Nevertheless, the sheer volume of the financial reforms points out that the regulatory framework of the financial sector obviously has its limitations. Specifically, the standards of consultation risk assessment were expected to be high and were not maintained at all times. Yet the achievement should not be blocked by the weaknesses the framework represents. One of the significant pillars of the framework was the formation of the new European Supervisory Agencies (ESAs). The agencies have withstood criticism since their initiation in 2011 and have done commendable work. [80]
However, they are faced with numerous fundamental flaws, including the absence of authority, inadequate independence, minimal influence regarding the shape of major legislation, and lack of proper funding and resources.[81] The authority and supremacy of the agencies have to be improved. The weakest parts of the reform legislation were caused by political pressures that demanded those responsible for the crisis to pay.
The major case includes the banks’ remuneration suggestion plan in the Capital Requirements Directive (CRD IV)[82] the controversial plans for a Financial Transaction Tax and the Alternative Investment Fund Managers Directive (AIFMD). Although these were exceptions the majority of the regulatory protocol was significant and proportional and would have been affected by the UK even the EU did not take any action at their end. The Single Market strengthened by creating the regulation for the EU and to evade regulatory arbitrage [83]
The European Commissioner for Financial Services, Financial Stability, and Capital Markets Union is committed to reviewing the effects of each reform. Such a review should entail a conclusive internal audit for the whole legislative framework to provide solutions for the major flaws identified and the significance of the growth agenda. Therefore the suggestions for an investment plan would go along way in stabilizing capital markets union. [84] The UK has the biggest financial zone in the EU, and the consequences for the country would therefore be huge. Unfortunately, the influence of the UK over the financial agenda of the EU continues to weaken and the UK Government should increase its engagement with the European allies.
Basel as a Regulatory Model
The Basel was an international framework for charitable regulation on stress testing, adequacy of capital in banks, and market liquidity risks. Perhaps, the widely acknowledged demerit to the Basel approach is its complexity. It has been argued that a composite environment requires attention because of increased chances of jeopardies.[85] The banks using Basel I and Basel II in reducing money and giving back the shareholders the finances diminished their bigger assets risks. Asset holding not requiring capital increased significantly in its overall balance sheets entities. Meanwhile, the perilous assets were withdrawn from off-balance sheets units. Confidential information from supervision, including the bank reports, provides that the regulators well-thought-out that the said assets could have come back to the originating banks’ balance sheets.
The Basel approach has promoted regulations of bank capital adequacy and market liquidity risks since the late 1990s. While the Basel Committee on Banking Supervision (BCBS) considers risks as an asset with exogenous distinctive, actually, it is treated as an endogenous procedure.[86] The approach of inspiring all banks and financial institutions to withstand the burden of similar risk and provide compensation for them in case they heighten the percentage of assets considered of reduced risk in their portfolio, additionally, upsurges the banking sector instability. The increase in available funds, in the first case, to the classes of asset perceived of reduced risk, nevertheless, the approximations founded on time factors when the properties carried limited accessible less funding.[87]
The approach of the Basel to risk weighing alongside the procedure by the US to authorizing particular rating organizations followed by a submissive vie of the ratings of properties by general watchdogs promoted an explosion of the firms’ revenues. Meanwhile, a substantial alteration in their internal incentive systems also accrued. [88] The financial commissions availed to those establishing securities considered complex in nature partly became the result. The Basel approach also ignores that provided the exposure to risk entails dissimilar jeopardy for various banks to a level of different portfolios.
There were a couple of grounds for the Global Financial Crisis of 2007- 2008. [89]However, the immediate cause of the crisis was the bursting of the US housing bubble, which peaked between the years of 2005 and 2006. Housing prices were on the rise with the event that banks were indiscriminately giving out loans hence elevating the demand for houses. Accordingly, the debt finances and consumer spending facilitated largely by the availability of credit in the United States accompanied by the Asian and Australian debt crises. In the United Kingdom particularly, the problem of liquidity appeared to be a major setback that affected the consumers of financial services through the unavailability of credit in the end as opposed to the situation temporarily.[90]
The financial crisis inquiry based on the Basel Accords (Basel I and Basel II), which was set up specifically to establish the main causes of the Global Financial Crisis settled on the following reasons. The financial regulation and supervision letdowns emerged more shocking concerning the financial market permanency. Furthermore, the drastic corporate governance and risk management catastrophes central financial institutions played a significant role in causing the financial crisis that trembled the whole world. Thirdly, the mixture of unnecessary borrowing, investing with high risks, and lack of transparency rendered the monetary system on a crash leading to the crisis.
Meanwhile, the government inadequately put countermeasures to curb the financial crisis, therefore, its unpredictability coupled with poor response contributed to the uncertainty and panic in the financial markets. A complete collapse in responsibility and ethics, [91] the crumpling standards of mortgage lending and the securitization of mortgage pipeline set fire into a financial crisis.[92] These reasons were the reasons highlighted to be the root causes of the crises. They are simply a summary of the reasons for the crisis discussed earlier in this text.
The first set of reforms adopted by the BSCS to create the new regulatory framework was the accounting reforms. Under these, there four keys aspects that were under consideration.[93] The first aspect under accounting reforms was the measurement of fair value. All assets meant to be treated with the same fair value regardless of whether they appeared in the trading book; they were available for sale and so forth.[94]
The second aspect of accounting reforms was the evaluation of accounting procedures to enable them to deal with financial transactions comprehensively. For instance, instead of treating a repurchase agreement as a sale and forward contract to purchase, it would be treated as a financing transaction. The third aspect of accounting reforms was letting go of some financial instruments which did more harm than good as they were in one way or another contradictory. Finally, the fourth aspect of this category of reforms was to impair financial assets.[95]
The next category of reforms was regarding Credit Rating Agencies adopted at both national and international standards. The beginning of the U.S subprime mortgage for residential houses led to the world financial crisis. The credit rating agencies based in the US, such as Moody, Standard, and Poor (S&P) and Fitch became significant parties to the debacle. They favored ratings on securitized bonds for subprime mortgages alongside debt obligations that led to the successful selling of the bonds to investors.[96]
However, the sale of the bonds led to a significant underpinning for the housing boom and the housing price bubble of the U.S from 1998-2006. In turn, the U.S house price ceased growing in 2006 and started to fall making mortgage borrowers become defaulters. Thus, the mortgage bind prices dropped leading to concerns for the banks that invested in the bonds as well as the larger US financial system. This led to a wide political media, and regulatory attention prompting criticism. These are agencies that were used by investors to help in valuing their assets. This is because there indeed existed conflicts of interest with particular regard to the revenue earned from their business. The relationship of the Credit Rating Agencies to the regulatory framework is the fact that they are key financial advisors and as such, wrong advice would lead to wrong decision making in the sector. [97]
Disclosure requirements formed a fundamental part of the regulatory framework. The main objective of this policy was to create some sort of break-even between market discipline and financial regulation. In the same way that consumers of financial services are meant to disclose some information to their financial providers, the providers of such services are expected to do the same. This would create some degree of openness and hence create a good client relationship. Integrity would also be boosted on the same, not since the client would have a perfect financial market understanding and at the same time, the financial institution would have perfect knowledge of the client.
The next set of regulations could be termed as prudential regulation, which is aimed at protecting the stakeholders. This would be through liquidity as well as capital. Besides, related to this closely were the bank capital requirements, referred to as the Base II requirements. These were made on the leverage ratio, the quality of capital, common equity, capital requirement as well as its conservation. The main reason behind this was to improve the standards and quality of capital requirements. If these requirements were met, bank funding would also be improved on a huge scale. The issues relating to credit and liquidity during the Global Financial Crisis would also have been addressed.
Moreover, a significant emphasis on financial regulation should be greater transparency in the financial institutions, especially the banking system. The Co-Co holders often require fruitful information and the work of a supervisor should be to compel banks to disclose accurate information. The regulators should assess banks’ risk management system because it is important in certifying their approaches to rewarding risks.[98]
The assessment of risk management and reward of risks should be considered a significant determinant. While the act of publishing such scores would not offend banks’ privacy, it would send important information to shareholders and creditors of banks.[99] Furthermore, disclosure of financial information is necessary to offer the regulators and markets a platform for working in collaboration to support risk management. Certainly, the ending of risk is weighting, however, it would be instrumental in the ending of holding of highly-rated instruments in other sectors of finance, including insurance companies and pension funds.
Global Financial Crisis Effects
The Global Financial Crisis had adverse effects on the United Kingdom and exactly why seven years down the line, the effects of the same are still felt. However, it is fundamental to highlight the immediate causes of the crisis in the United Kingdom. Earlier in the introductory chapters, the research progressively revealed the fact that the crisis had its origin in the United States yet it was felt all over the world. As a result, it is reasonable to identify some of the causes of the crisis, particularly in the United Kingdom.[100] Market instability, which is an imbalance between demand and supply of credit, in this case, was definitely one of the factors that predisposed Britain to the financial crisis.[101]
Market instability itself occurred because of the chain of many other factors. Chief among these factors was, however, the dynamic changes in the ability of the financial sector to create new lines of credit. Credit facilitates trade and its apparent absence only meant doom to the financial services consumers. In fact, the flow of money dried up and this saw the economy growing at a much slower rate. This is because the process of buying and selling assets was completely paralyzed with the unavailability of credit. The most affected groups were among individuals, financial institutions as well as business institutions as it came as a very hard blow for these particular groups. The mere fact that most business transactions came to a halt goes without saying.[102]
The result of this is that most of the financial institutions were left with nothing much to hold on to other than assets that were backed by a mortgage. At the same time, it is imperative to note that the prices of these mortgages were on the constant decrease as the précises reduced quite considerably. Owing to this fact, the value of the mortgages was beyond the value needed to pay up for the loans, and as such the reserve cash of most financial institutions soon dried up. Concurrently, the institutions were in no position to make new loans. The profit of credit creation is adversely affected.
Besides the market instability, the availability of cheap credit was also an additional issue that was subsidized to the Global Financial Crisis in the United Kingdom.[103] This is because the cheap credit made houses extremely cheap. Similarly, cheap credit disposal made people invest in pure speculation as opposed to the existent market forces of demand and supply. Cheap credit, as a result, led to an increase in money supply, which increased the transactional as well as the speculative demand for money. The huge money supply created a drive within individuals to want to spend more of it. The unfortunate event that came with this situation is that people wanted to buy the same commodity, which is houses, whose prices had decreased precipitously.
The increase in the demand for houses resulted in inflation. It is interesting to note that private equity firms invested in the buying of companies. This was indeed a very prudent investment as it would have fetched quite a considerable amount in today’s market. However, this was not the case at that time when the Global Financial Crisis was at its peak.[104] The picture painted at that time was so different. The private equity firms indeed made billions of dollars. However, with a large amount of money supply in circulation, this money had limited value. Such speculative tendencies thereby left businessmen with dead investments whereby there was so much money to show of the businesses but the money had very little value.[105]
The situation characterized by excess money supply and the inability of financial institutions to create more credit could have been easily remedied. However, it seemed to get worse particularly in 2008.[106] One important factor that can be attributed to the worsening of the financial situation is greed. Greed is one factor that changed the financial situation from bad to worse. The United Kingdom’s economy is facilitated greatly by credit. It is thereby the use that this credit is put into that determines the degree of economic growth and development that will be experienced in the economy.
If the credit is put into great use through prudent investment, the returns are bound to be encouraging. This is, however, where the British went wrong and instead of putting the surplus credit in the economy into such significant use, consumers of financial services were driven by misplaced priorities with the purchases of large ticket items such as cars topping the list.[107] Credit was unchecked leading to a deficiency in the country for the 2007/2009 period leading to serious credit and liquidity problems. The Global Financial Crisis could have been avoided in the United Kingdom, yet this was not the case.
The indiscriminate giving of loans was a process that was facilitated by mortgage brokers specifically. They acted as middlemen and this role gave them the mandate to determine whoever received the loans contrary to the regulations.[108] Exotic as well as risky loans eventually became the order of the day.[109] The consequence of this is that individuals took loans that they could not be able to afford with the mere speculation that they would be able to refinance the mortgages at higher equity at a much later stage. This indeed had a short-run impact on individuals as it could be noted that most individuals actually got rich at a very fast rate.[110]
Other individuals were also attracted to the same investments as it appeared as an easy source of wealth.[111] Events, however, took a different turn as it is common for financial markets since they are characterized by high degrees of uncertainty. The housing market declined and as such, the then-recent notion of flipping houses by individuals came to an end. [112] Mortgages that had appeared to be quite affordable for homeowners now seemed expensive. This saw most of the mortgages being defaulted and the result is that the financial institutions, as well as the investors, were left simply holding the bag.[113]
As a result, most of the mortgage-backed securities incurred huge losses with the principal reason being defaulted payments.[114] It is also important to note that as house ownership became a tall order, there were also other groups of people that were affected adversely too such as homebuilders who had to stay out of their job due to the prevailing crisis. This is to imply that it is not only the direct consumers of financial services that were affected by the Global Financial Crisis. The effects had a chain of victims of the same, both those who suffered directly as well as those who suffered indirectly. This indeed reveals the impact of the Global Financial Crisis on the United Kingdom.
The recipients of financial education said to be another group impacted by the Global Financial Crisis. Notably, the reaction by consumers towards the crisis was that of anger as well as anxiety. [115] The unfolding of events during the crisis revealed that financial education was not placed as a substitute for consumer protection. Instead, it is a major element in consumer protection. As much as inadequate consumer education may not have been a fundamental root of the financial crisis in the United Kingdom, the fact that it contributed to the worsening of the crisis is quite clear. For instance, the fact that the consumers of financial services in Britain were not aware of deposit protection did not cause the crisis but it worsened it since it caused financial bank run. [116]
As a result, there have been a couple of issues raised concerning the crisis impact on the recipients of financial education. One such factor is the teaching moment. The crisis has created a platform to create awareness of financial education all over the United Kingdom.[117] Usually, the simple act of bringing together consumers of financial services that are united by a common goal, which is their protection, is often not easy. However, the crisis made this mobilization quite easy since the consumers comprehend from experience that lack of such knowledge could have dire consequences on their lives.
The same group of affected consumers have increased the awareness amongst other consumers who may have or not been affected either directly or indirectly by the crisis. [118]Actually, the mobilization of these consumers was a result of their thirst to understand in detail the problems that they were facing as consumers and in turn get advice on the same.
The apparent need for core financial education services came out quite clearly as of the Global Financial Crisis consequences on the recipients of financial education. As evidenced through the kind of predicaments, that the consumers were involved in that revealed the inherent need for the skills viewed as rather basic skills for knowledge. The crisis, therefore, revealed that core financial education to consumers in the United Kingdom would be really important as it would equip them with skills on budgeting, saving, planning as well as interpretation of speculative tendencies. Another major impact or rather effect of the Global Financial Crisis was the confidence crisis. More often than not, the performance of many governments is consistently revealed through the performance of the economy primarily.
The United Kingdom is thereby not an exception when it comes to this particular criterion. [119] The Global Financial Crisis created some sort of general distrust towards the government, not only in the United Kingdom but also all over the world. [120] The confidence of consumers in their government shriveled with the rising instances of low savings, the precipitous decrease in the value of houses, and such like tendencies. These events greatly undermined consumer confidence and it is for this reason that the confidence crisis was a major impact of the Global Financial Crisis in the United Kingdom. Consumers felt betrayed by the government since they really needed independent information sources that they could put their trust in during and after the crisis.[121]
Unfortunately, the people appointed for the financial rescue, and reregulation approaches were uniquely unqualified to meet the needs of consumers in terms of downsizing financial markets and eradicating dangerous securities. The role of the media slightly redefined during the crisis and this defined the Global Financial Crisis impacts.[122] The media actually rejuvenated their interest in financial education as they tried to polish up their role as educators of the mass. However, the media did not just play an informative role. Instead, it aggravated the situation in some instances.[123] This contributed negatively to the crisis.[124]
The providers of financial education are also compressed by the crisis. For providers of financial services, the predicament has always been where to draw the line between long time priorities and short-term priorities. The Global Financial Crisis saw resources directed mainly to solve the temporary problems. This is because there was an urgent need for immediate solutions that could cool down the financial temperatures at that particular point in time. The impact of the crisis on financial services benefactors in the United Kingdom is that it revealed the fact that financial education could be used as a key to unlock the solutions to short-term problems.
An exceptional example of the practicability of this is the event that the fiscal capabilities of immigrants or even the unemployed people fostered. [125]The government, which is one of the chief providers of financial education through the media and government agencies, was now preoccupied with regulatory as well as supervisory roles because of the financial crisis. This is because the consumers were undergoing very serious challenges and hence the inherent need for government intervention. Another impression of The Global Financial Crisis on the government in the United Kingdom is that it strengthened the process of formulation and implementation of policies.
The need for well-established and comprehensive policies in the financial markets became quite clear. The crisis also had a very great impact on schools as well as providers of fiscal learning. [126]The importance of including financial education into the normal curriculum and routine of students became apparent. The United Kingdom is in fact one of the countries, if not the only one, in which financial training became a basic part of the school curriculum. The government also introduced some initiatives aimed towards the provision of financial education in schools.[127] This education is for the students as well as their teachers and it is made accessible without much strain.[128] This was a consequence of the Global Financial Crisis.
[129] The Global Financial Crisis also had significant impacts on the industrial sector in the United Kingdom. In fact, the focus of most companies as well as industries underwent a series of dynamic changes whereby the focus shifted from the stakeholders in the industry to the customers. [130]The goals of the industries also changed concerning their period. The role of government regulation became quite apparent if the demand for safe and guaranteed products increased as opposed to the demand for other products. Standardization of products became quite important, as consumers also preferred standardized products on the shelves to any other products.[131]
Remarkably, the role that intermediaries played in the Global Financial Crisis that worsened the crisis had a huge impact on the United Kingdom after the crisis. This is because the importance of financial education of these intermediaries seemed to get some considerable degree of popularity, especially after the crisis.[132]The role of consumer associations (European Consumers’ Organization and Financial Consumer Agency of Canada) protects their interests such as redefined by the crisis and as such, it proved to be an impact of the crisis.
Consumer associations are non- governmental associations with one major goal of the protection of consumers. However, unlike the majority of the groups that have been discussed above which were impacted by the crisis, the consumer associations were driven more by regulation of the products as opposed to financial education. [133]However, this tendency of mixing financial education with consumer protection should be avoided since as seen earlier, one can never be substituted for the other. All the same, consumer associations sought to ensure that the interests as well as the safety of the consumers came first. The associations redefined their roles and started attending to all complaints by consumers, ensuring the availability of products to consumers compromised through hoarding. This came because of the Global Financial Crisis and was thus an impact of the same.[134]
The Global Financial Crisis affected financial institutions a great deal. In fact, it is recorded that Europe is one of the continents whereby destruction in the financial institutions was so pronounced that business was almost paralyzed for the reason that of the credit issues as well as liquidity issues.[135] The economy of the United Kingdom is indeed very dependent on the financial sector. Consequently, the fact that this very sector was under turmoil affected the country a great deal. The banking system adversely affected and some parts of Europe, for instance, Iceland, had no other option other than borrowing from the International Monetary Fund to achieve financial sustainability. [136]
In the United Kingdom, the public was dissatisfied with the way that this crisis was handled by the government. Northern Rock, which is a commercial bank in the United Kingdom, was actually the first bank to acquire a loan from the government. It is however important to note that Minister Gordon Brown is remembered to date for bailing out the banks as they were under financial siege. Brown’s strategy was brilliant as it was even borrowed by the United States as well as other parts of Europe.
This created another major debate owing to the fact seemed like the banks, which were the major financial institutions that failed terribly and led to the Global Financial Crisis, to the same institutions bailed out. It was indeed a crisis too severe, but then the bodies or individuals that caused the crisis were the same ones bailed out. [137] This is because of the money supply. Since the supply happens all around the globe, it is imperative to keep it in check. It is for this reason actually that money supply is exogenous.
Human rights conditions, on the other hand, were made worse by the crisis. This simply implies that the social lives of citizens of the United Kingdom were compromised largely. This is because recent that have indicated very strong correlations between the rights and welfare of human beings and their level of economic development.[138] Consequently, the poor people, or rather those who live below the poverty line, are affected the most as compared to the rich. The result of this pronounced income as well as economic disparities as the distance separating the low and high social class widened by the day. In recognition of this, clearly, the Global Financial Crisis had adverse impacts on the welfare of the citizens of the United Kingdom. It indeed affected the quality of life of the citizens adversely.
The same said about societal welfare. Before the crisis, societal welfare, which was given by the gap between the rich and the poor, was at a commendable level.[139] However, as noted that the effect of the crisis on human rights anticipated. This is evidenced by the warnings that had been sounded earlier by several human rights activists before the crisis took the financial sector of the country under siege. [140] The consequence of the effects of the crisis on people’s human rights was desperate social and economic conditions especially with the constant rise in the cost of living. This is because the Global Financial Crisis had very huge impacts on the economy of the country. At times, individuals could use the streets to voice their plight, as they wanted the situation addressed. The result of this was the police on the streets constantly trying to repress such groups.
[141] The fact that the Low Developed Countries depended on foreign aid from the foreign countries also had a former group of adversely affected by the crisis. The United Kingdom was not in a position to give foreign aid, especially with the then prevailing conditions. She, as a country, had to step aside and deal with her own financial issues before she could address the financial issues of another country. At the end of the day, countries that were dependent on her for foreign aid affected immensely. Now, it is therefore very important for us to note that the Millennium development goals are exaggerated by the crisis. One would ask, how? One of the goals laid out as Millennium Development goals was to ensure that the social and economic disparities were reduced. Another objective was to reduce poverty and hunger all over the world through collective responsibility. With the effects of the crisis, such goals could not be achieved that easy.
Tendencies of capital flight also took a toll on the economy of the United Kingdom because of the Global Financial Crisis. In other words, the crisis weakened the UK currency at some point especially when there was an excessive inflow of credit from various institutions in the finance sector. As a result, the Pound became a weak currency.[142] It is worth noting that as much as the crisis-affected many other countries, the effects as well as the extent of the effects created a huge difference between particular countries. The result of a weakened economic crisis is capital flight as investors were looking for investment areas with little risk and uncertainty as well as prospects of economic viability.
Investment in itself, whether by domestic or foreign investment, forms a very essential part of National Income. [143]The consequence of the withdrawal of foreign investors was that National Income, or rather, Aggregate Expenditure was adversely affected. In other words, it was a vicious circle whose result was reduced economic growth and development. This is because a reduction in the national income simply implies a reduction in the GDP of the country.
This is the opposite of economic growth and development. Another way through which the National Income was affected was through the effect on government expenditure. Government expenditure was affected by the effect on the amount of taxes collected. It is indeed imperative to note that taxes are one of the main sources of financing the economy. If the amount of taxes collected is affected in the economy, it implies a similar effect or rather impacts, on government expenditure. The Global Financial Crisis, therefore, saw a weakened economy that could not finance itself due to a couple of reasons.
The debt crisis also affected the United Kingdom to a very great extent as a result of the Global Financial Crisis. This is because as stated earlier in this text, there are a couple of Third World Countries that can be counted as financial beneficiaries of the United States in several ways, some through loans, others through grants. The global financial countries weakened the economy of many countries and the third world countries were not an exception concerning this. In any case, they were some of the countries that appeared top on the list of the countries adversely affected by the crisis. [144]
The implication of this on the economy of the United Kingdom is that the third world countries and other countries as well which were financial beneficiaries were not in a position to meet their financial obligation to repay the financial assistance that had been lent to them by the United Kingdom. This, of course, had very huge impacts on the economy of the United Kingdom as it made baby steps to be in a position to address the serious economic issues that it was facing. It is also very imperative to understand that these serious economic issues that were faced by the economy of the United Kingdom were caused by both irresponsible borrowers as well as irresponsible lenders.
The irresponsible borrowers were mainly dictators from Third World Countries who had backing or support from the United Kingdom. The irresponsible lenders on the other hand were major financial institutions in the country that had adopted tendencies of indiscriminate lending like many other financial institutions all over the world. This put the United Kingdom in a very tough financial position as the sources of its finances were greatly affected by the crisis. The same results persisted even after the crisis as the United Kingdom, among other countries, was called upon to bail out the third world countries from their plight. Because the United Kingdom was not able to stand on its own at this particular time because it has just begun to take its first steps, lending was bound to drag the economy of the country milestones behind. The adverse effects on the economy followed soon after.
This part of the research reveals some of the ways through which the Global Financial Crisis impacted the United Kingdom. From the analysis, it has been revealed that the crisis had social, economic as well as political effects on the economy of the United Kingdom. However, the economic sector was immensely affected by the three. The effects were both direct and indirect. These effects had huge negative effects on the United Kingdom as a whole. The cost of these effects on the country has also been conceptualized as well through the analysis of this particular sector. At the end of the analysis, the fact that the Global Financial Crisis had negative impacts on the Economy of the United Kingdom has become apparent.
CHAPTER FOUR: THE REGULATORY AND LEGAL FRAMEWORK GUIDING CONSUMER PROTECTION IN THE FINANCIAL SECTOR IN THE UK
The financial segment is an important contributor to the UK economy as it is one of the leading employers, GDP contributors, and exporters. [145] The welfare of the citizens particularly as consumers in the financial industry seemed to be one of the major issues during and after the Global Financial Crisis. This chapter, therefore, seeks to establish some of the ways through which the United Kingdom has adapted to address the same as well as the effectiveness of the measures since adopted. Regulations made in the interest of consumers have been since adopted but with minimal changes being seen. Further regulations are adopted and this is what the research seeks to address comprehensively in this particular chapter.
The reforms were made in the financial sector in the United Kingdom that formed consumer protection after the Global Financial Crisis. Among such reforms was the creation of the FCA (Financial Conduct Authority). The FCA was the replaced FSA (Financial Services Authority). This body was an authority charged with the responsibility of regulation of investment as well as supervising banking services in the United Kingdom. It was a body formed in 1997 for regulatory purposes. [146]The wake of the financial crisis however led to changes in this body whereby it changed from the FSA to the FCA.
The main objective of this new body was to safeguard the financial markets in the United Kingdom were fully functional and at the same time, ensures that consumers of financial services were in for a very great deal. As such, the FCA was the regulatory body that formed after the financial crisis to ensure that there was integrity in the market as well as ensure that the financial services in the United Kingdom regulated such that the consumers do not suffer the reoccurrence of another crisis this severe. In addition to this new body is also the Prudential Regulatory Authority, the PRA, which also plays a regulatory role concerning financial services in the UK. It oversees the creation of credit unions, the regulation of banks as well as the creation of investment firms to ensure that the consumers protected at all costs from the effects of a financial crisis [147]
The non-interventionist approaches adopted in the period before the crisis are based on traditional theories and it is for this reason that they failed terribly. As such, it was prudent to find another approach to address the issue of consumer protection.[148] Consequently, the current regulations are based on a more interventionist approach. The crisis indeed highlighted the importance as well as the apparent need for the development of more comprehensive consumer protection measures due to the increased complexity of the financial markets. [149]The pre-crisis period saw a regulatory system coupled with several weaknesses such as lack of transparency and efficient regulatory and supervisory practices as highlighted by the crisis.
Because lack of transparency was a major issue, consumer protection after the crisis services focused much on the enhancement of transparency of product structure particularly. Transparency here refers to transparency in terms of pricing, the structure of the product in question as well as exceptional charges as this were among the major issues that led to lack of transparency and the eventual Global Financial Crisis. [150]Regulators are therefore of the thought that an increased level of transparency would be helpful to investors in their process of decision making and would as well elevate the level of competition in the market.
In the United Kingdom, transparency is promoted through the standardization of the important information relating to investors under the Collective Investments in Transferrable Securities. The transparency of products meant to increase competition in the market and therefore protect consumers from manipulation by monopolists. [151] The Financial Services Authority in the United Kingdom, as highlighted earlier in this research, in 20114 commenced the process of the implementation of the Retail Distribution Review.
One of the properties of the Global Financial Crisis in the United Kingdom is that the government adopted certain mechanisms to ensure that the country does not end up in a similar financial situation shortly.[152] Regulations came out quite clearly as one of the ways through which the economy of the UK stabilized. This could be attributed to the fact the absence of these regulations was a key contributor to the financial state of affairs of the Global Financial Crisis.[153] As a precautionary measure and a remedy at the same time, government regulations turned out to be an inherent part of the healing process. To put matters into perspective, the paper will analyze some of the regulations before and after the crisis as well as their impact on the economy of the United Kingdom. This segment also reveals the degree of effectiveness of these regulations to the same economy. By the end of this part of the research, the impact of these regulations will become apparent as the analysis delves much deeper into the core subject of this very chapter.
It is imperative to note that some of the regulations that are put in place come rather late. If these very regulations were incorporated into the system early enough, then the effects of the Global Financial Crisis on the United Kingdom could have been minimal.[154] For this reason, however, the fact that it takes a blow as big as the Global Financial Crisis to lead to positive dynamic regulatory changes has become quite clear. The application, as well as the entire adoption of these regulations on the economy of the United Kingdom and particularly its financial sector, came quite late, at a time when there has been so much damage.
These times when the financial crisis is described as contagious. However, it is better late than never. The pre-crisis period revealed that failure to reinforce some of the policies by the government could have extremely adverse effects on the trust capital of the clients, who the consumers of financial services. [155] Besides, the comparison of the pre-crisis as the post-crisis periods revealed the fact that the enforcement of these regulations should be constantly accompanied by follow-ups by the government to ensure that indeed every member of the United Kingdom complies. Irregularities should also be accompanied by penalties to deter the occurrence of a similar eventuality.
[156] The consequence of this was that the government imposed a more rigorous control of the concerned parties. This was done successfully through agencies such as the Financial Services Authority among others that allied to the government that charged with the responsibility of enforcing government regulations. The pre-crisis period saw a regulatory framework that could loosen its threads repeatedly. However, the Global Financial Crisis revealed the importance of having a minimum regulatory standard that would keep the entire regulatory framework in check. [157] At the same time, the objective of the minimum regulatory standard was to ensure that any form of negative effects of the financial crisis was counteracted to result in a comprehensive regulatory framework in the financial segment.
The prominence of these regulations also came out quite clearly as it was evidenced by the fact that the best way through which any occurrence of financial convulsions that could come up due to extreme situations could be avoided through a minimum standard regulatory approach.[158] Another justification for the existence of regulatory measures based on the fact that for both producers and consumers to make prudent decisions in the market, the financial market in this case, both the two parties need to avail the correct information that is needed to spearhead the entire process of decision making. In other words, there is a need for regulations to ensure that both these parties give nothing short of accurate information. The implication of this would be a smooth process in terms of decision making for both sides of the bargain. As such, the imposition of regulations would identify the extent of highlighting some of the existent probabilities as well as laying out both the merits and demerits that come with these possibilities.
The fact that the regulatory framework of the financial sector today in the United Kingdom has failed in a couple of areas even with the restrictions in place is the existent possibility that the suppliers have made a tendency to create a false image in terms of the financial services.[159] The result of this is that clients end up sealing a deal without understanding the implications of the same comprehensively. [160]This poses the need for even more stringent regulations in the financial sector that could counteract such effects and thereby cushion the consumers.
Before the Global Financial Crisis, the ratio between the information known by the providers of financial services and that of the clients was clearly disproportionate, with the providers of financial services appearing to be favored highly. [161] This disadvantaged the consumers of financial services a great deal. This is exactly why the importance of more stringent regulations could never be underestimated. A good illustration of this would be through the consideration of a bank as a financial institution for that matter. The bank is often in possession of a lot of information about their clients. This information includes the client’s financial situation; the client is accounting documents, his or her guarantors, and the feasibility studies of the economic situation of the client and such as sensitive information.
On the contrary, the client possesses very little information of the same nature by the bank. For instance, the customer cannot really boast of knowing how his or her deposits are used, the ability of the bank to meet its financial obligations, and so on. This disproportionate scale of information could have negative impacts on the client. As a result, the ignorance of the customer cannot make him or her in a position whereby he could weigh the possibilities that lie in front of him to make a prudent decision.
This further widens the degree of risks and uncertainty. As such, the security of the consumers’ needs is compromised. The two parties, furthermore, have very distinct levels of economic knowledge. On one hand, the financial institutions are rich when it comes to economic knowledge. On the other hand, consumers have very limited knowledge when it comes to such knowledge. [162]Consequently, regulations are very inherent to try to balance the existent imbalances between the two parties.
Concerning the Global Financial Crisis, it was noted by Ricardo that the banks did not seek accurate information from clients before the decision to issue out the loans. These were the prevailing conditions before the crisis. However, the financial regulations in the sector after the crisis have aided a lot in the acquisition of information as well as its dissemination. The malfunctions of the financial sector can be best addressed through regulations to achieve a well-balanced relationship between the service providers and the consumers as well. Following the analysis, it is clear that regulations in the financial sector are indeed indispensable if another replica of the Global Financial Crisis is to averted. The next part gives a detailed review of some of the specific regulations in the United Kingdom before and after the Global Financial Crisis. It includes some of the reforms in the banking sector that made after the Global Financial Crisis.
Policymakers have indeed made efforts to correct some of the damage done during the Global Financial Crisis and as such curb the occurrence of such an instance again shortly. This has been through the enactment of several reforms at the local or rather domestic level as well as at international levels. The journey began with the formalization of the Financial Stability Board, which was an informal United Kingdom body before the crisis. It is a body that is specifically charged with the responsibility of coordinating all the duties of various financial institutions in the country. As a result, it foresees that financial institutions work by the regulations put in place.
This body is part of the regulatory framework as it plays a regulatory role in the bid to cushion consumers from manipulation by financial institutions.[163] Actually, this body is credited with a couple of reforms that it has made to the financial sector in the United Kingdom. It implemented the capital requirements according to Basel III. These were among the inclusion of capital buffer financial system and the (G –SIFIs) which the Globally Systematically Important Financial Institutions. The body is credited for the approach to the problem of liquidity that is termed as the Liquidity Coverage Ratio. Moreover, the contribution of the authority mentioned, where the strategy regarding some financial institutions such as commercial banks as too big to fail.
This implied that it was a prerequisite for these institutions to have adequate capital, be under strict supervision by governmental authorities, and besides, these too big to fail institutions also ought to have some tools that can be used to save them in the case of a crisis. The main objective of this body in the process of enumerating these responses was to ensure that in the case of another crisis such as the Global Financial Crisis, financial institutions can be able to recover from such crises without causing much disruption as it was in 2008. [164]At the same time, it would control the consequences of the Global Financial Crisis since there would be no mutual relations and vicious circles.
Besides, this post-crisis authority also enhanced the securitization model a great deal. [165] This was through the policy that achievable, sound and comprehensive practices of compensation were to be put in place to ensure that there was no room for taking risks as it were the case in 2008 where loans were advanced to clients incapable of repaying them or offering any other form of compensation. Besides, the body also advocated for the filling of some data gaps that could otherwise affect the entire transactional process in the financial sector adversely. It is, however, important to note that these policies were adopted but still there is not much progress.
This essentially highlights the fact that there is an apparent need to evaluate these policies to be able to know which of them to prioritize. Seven years down the line, the weaknesses of each policy as well as the limitations can be pointed out and this would indeed form the basis of effective structural reforms and policies. This would also be of great importance when it comes to the process of identifying the approaches to be used in ensuring effective regulation.
The United Kingdom was one of the countries that were quick to react to find a remedy to the ailing financial sector. One of the important moves that were made by the country was made on ‘Super Tuesday’ which was the 15th day of April 2007. The country, through the European Union, took up the agenda of a reform program with about 40 pieces of legislation. These laws were basically on matters of supervision and structural institutional reforms. The harmonization of these rules formed the cornerstone of regulation. Some of the legislations under this were the Capital Requirements Regulation (EMIR),
The Capital Requirements Directive Reform IV (CDR IV), and finally the Capital Requirements Regulation (CRR) respectively.[166] All these regulations had one common goal; they all aimed at achieving financial stability. There are also other regulations, through pieces of legislation that address particular concerns of the European Union about the crisis. A good example was the Alternative Investment Fund Managers Directive (AIFMD) among others. However, the reforms were also flawed in one way or another. Being the result of a couple of schools of thought, some of them appeared a product of ill advice. Like many other reforms that existed before the crisis, these reforms also appeared somewhat politicized.
The entire regulatory framework (post-crisis) is structured in a way that is destined to achieve a couple of objectives.[167] It aimed at restoring the financial services in the United Kingdom and the European Union at large. The financial system that anticipated meant to be much more stable and resilient at the same time. With the adverse effects on the banking sector, the post-crisis regulatory framework also had the establishment of a banking union as one of its aims. This was an imperative forum for banks to conduct effective communication to better their performance. Another important objective of the new regulatory framework that came after the crisis was to advocate for integrity, transparency, accountability, as well as responsibility all to ensure consumer protection.
The same put in place to repair the damaged confidence of consumers in the existent financial institutions destroyed during the crisis. Generally, the United Kingdom focused on improving its financial system. The regulatory framework after the crisis also aimed at reviewing all the policies that were in place at the time of the crisis since they had definitely failed with reference to the protection of the consumers as well as financial stability. These reforms are the ones that drew the line between the regulatory framework before and after the crisis and creating a big difference between the two periods. The period after the crisis saw a much more objective regulatory system that was driven by consumer protection as opposed to the previous one which focused on the growth of financial institutions primarily.
The Global Financial Crisis indeed proved that a country couldn’t work independently in the event of such a crisis. [168]For this reason, the United Kingdom, as it was making attempts to come up with this particular regulatory framework, considered other countries as well. It is for this reason that the regulations that the country adopted were in line with those of the European Union since as a member of the European Union, the United Kingdom is obliged to comply. The main reason behind this is that financial markets are actually integrated. As a result, the decisions, even regulatory decisions, are often intertwined.
Actually, before the crisis, the regulations were not followed strictly. The picture, however, changed after the crisis. This attributed to the fact that the impact of such a crisis was revealed and so was the importance of the regulations. The result is that the concerned authorities understood the fact that the importance of these regulations could never be underestimated and therefore the apparent need to ensure that these regulations strictly followed to the letter. As such, it concluded that the regulations before the crisis were less stringent as compared to after the crisis and it is for this reason that the Global Financial Crisis even occurred in the first place.
The current regulatory framework is however very likely to have some adverse effects. This is indeed very vital to note. This is because as the government tries to protect consumers in the United Kingdom from some of the banking failures that led to the Global Financial Crisis, there is the risk of charges inflating, and the level of lending also reducing. [169]The ring-fencing regulations in Britain for instance require the separation of retail business from other divisions by the bank if the bank holds deposits from 25 billion Euros. The regulations are put in place to ensure that high street banks are made safer but this could lead to a huge cost being incurred by the lenders. In other words, the postulated outcome of these regulations is that banking services will become more expensive and on the other hand, the availability of credit will be a problem.
CHAPTER FIVE: CONCLUSIONS AND RECOMMENDATIONS
Recommendations
This chapter gives a conclusion of the major issues handled by this research. The findings from the research presented in this chapter. The recommendations are then suggested with key references to the results of the research.
The regulatory measures aimed at consumer protection, minimizing the effects of the crisis as well as prevent the reoccurrence of another crisis. This implies that the regulations adopted whatsoever should have all these three elements under consideration. The closure of such institutions would aid in the elimination of financial institutions that do not have the ability to conduct vital financial procedures in the financial markets. The indispensable importance of this measure is associated with the inability of some financial institutions in the Global Financial Crisis to meet their financial obligations. Therefore, enhancing sound regulation would strengthen the regulatory regimes, risk management, and prudential oversight and ensure that all financial markets participants and products are regulated to become subject to oversight, as significant to their circumstances. Besides, the regulatory regimes should be made more effective over economic cycles and at the same time ensuring that regulation is efficient and does not stifle innovation and consumption.
It is also important to ensure that the advantage that financial institutions can assume is restricted. At the same time, policymakers should create a clear distinction between commercial banking and investment banking. [170] The importance of this would be to create independence between these two banking sectors and avoid the spread of adverse financial effects should one of the banking systems be affected. In other words, it controls the impacts of a financial crisis, should any happen. The U.K. and U.S. economies should ensure the promotion of integrity in financial markets. There should be a commitment to protect the integrity of the global financial markets by bolstering consumer and investor protection, preventing illegal market manipulation, avoiding conflicts of interest, protecting against illicit financial risks, and preventing fraudulent activities and abuse.
A couple of regulations were adopted in the banking sector to cushion the banks as well as the consumers of financial services. Among such would be to increase capital requirements. This would be done through measures such as increasing capital ratios with the increase in the size of the banks. This suggests that the greater the bank, the more the capital ratio. The size of the bank is determined, not by physical size or extension but by the number of assets in possession by the bank.
The capital ratio increment with an increase in the size of the banks would be very important since it would help in preventing banks from becoming too big and at the same time, reduce the competitive advantage of such big banks. It would also be necessary as well as recommendable to ensure that every financial institution has the correct amount of capital to conduct its businesses as well as to meet its financial obligations. Counterparty risk is put on a very limited scale through the regulation of credit derivatives in such a way that both parties, that is, the consumer and the provider, have sufficient as well as the necessary information that is required.
Having it as a prerequisite for all financial institutions to maintain contingent capital would be recommendable as well. This would imply that the financial institutions pay a certain amount of premium to the government in the event of an economic boom, with the government paying them back in the event of a recession. This would limit the effects of a financial crisis by keeping the financial market in check.
Conclusion
This research analysis clarified the fact that the Global Financial Crisis saw the world’s economy dipping into a great recession with its effects felt all over the world. The crisis generally started with the laxity of financial institutions such as banks, which are responsible for credit creation. The result was the weakening of the regulatory instruments. At the end of the day, it was clear that there were a couple of discrepancies in the financial sector hence the urgent call for reforms. [171] With the social, political, and most importantly economic effects of the crisis being felt in 2008, this period saw the government intervening through pieces of legislation as well as reforms.
Chapter four of this research paper gives a comprehensive analysis of the post-crisis regulatory reforms and compares them to the reforms before the crisis. It is worth noting that the current regulatory measures put in place to cushion specifically consumers from the adverse effects of another crisis. The effects are discussed in detail in the third chapter. However, there is still more than could be done to take the protection of consumers to another level concerning the dynamic financial market in the United Kingdom. This is basically what this fifth chapter has tackled in detail. These recommendations, should they be taken into consideration, would have the interests of the consumers at heart, considering they are the most vulnerable group in the financial markets they are considered.
In light of these discoveries, arguably the income is the most substantial factor that shapes the consumption of consumers. The income elasticity of products, such as food and housing, resulting from the risk in reduction or loss of income changes their consumption reference to low-quality products or completely restraining from acquiring services of financial institutions such as banks and insurance firms. However, over the previous years, the major global economic players (UK and US) have taken excellent approaches to support the national and international economies and stabilize financial markets.
The efforts must endure a proper foundation that must be established for reform to help ensure that a Global Financial Crisis does not happen again as it has detrimental effects on consumers. The preventive measures should be steered by the hared belief of market principles, investment regimes, and open trade, and effective regulation of financial markets to foster the innovation, vitality, and free enterprise that are necessary for employment, consumer protection, occupation, and economic growth.
BIBLIOGRAPHY
A Demon of Our Own Design: Markets, Hedge Funds, and the Perils of Financial Innovation, Hoboken, New Jersey, John Wiley & Sons
Adrian, T. and H.S. Shin (2007), ―Liquidity, Monetary Policy, and Financial Cycles,‖ in Current Issues in Economics and Finance, Federal Reserve Bank of New York, Vol. 14, No 1.
Althingi Special Investigation Commission (2010), ―The Report of the Special Investigation Commission (SIC)‖, http://sic.althingi.is/ (2010-05-03).
Announcement of the Malta Financial Services Authority on 28th December 2011:http://www.mfsa.com.mt/pages/AdministrativeMeasuresPenalties.aspx
Armstrong, Mark, “Interactions between Competition and Consumer Policy,” Competition Policy International, Volume 4, Number 1, Spring 2008
Australian Government Publishing Service, The Financial System Inquiry Final Report (“Wallis Report”), March 1997
Bank for International Settlements, Basel Committee on Banking Supervision, Core Principles for Effective Banking Supervision, September 1997, revised October 2006
Bank of England (2011). Instruments of macroprudential policy – a discussion paper available at
Bank of St. Louis Review, July/August.
Barr, A. (2007). Lehman shuts the BNC Mortgage unit, cuts 1,200 jobs. The Market Watch. http://www.marketwatch.com/story/lehman-shuts-subprime-lending-unit-eliminating-1200-jobs
Bean, C (2009), ―The Great Moderation, the Great Panic and the Great Contraction‖, BIS Review 101/2009.
Becker, J., and Morgenson, G. 2009. Geithner, as Member and Overseer, Forged Ties to Finance Club, New York Times, 27 April
Benston, George, Regulating Financial Markets: A Critique and Some Proposals, American Enterprise Institute for Public Policy and Research, 1999
Benston, George, Regulating Financial Markets: A Critique and Some Proposals, American Enterprise Institute for Public Policy and Research, 1999
Berkmen, P, Gelos, G, Rennhack, R and J.P. Walsh (2009), ―The Global Financial Crises: Explaining Cross-Country Differences in the Output Impact‖, IMF Working Paper 09/280.
Blanaru, C.-A. (2013). Financial Products Consumer Protection in the times of a Crisis. Post Doctoral Studies in Economics, 1-5.
Blundell-Wignall, A, Atkinson, P, and S. H. Lee (2008), The Current Financial Crisis: Causes and Policy Issues, July 2008.
Borio, C. E. (2007) Change and constancy in the financial system: implications for financial distress and policy. Bank for International Settlements Working Paper no. 237. October
Brown, O. W. (2009). Financial Markets Regulation:Financial Crisis Highlights Need to Improve. DIANE Publishing.
Cabestan, J.-P. (2012). China and the Global Financial Crisis: A Comparison with Europe.
California Budget Report, Locked Out 2008: The Housing Boom and Beyond, February 2008
Calomiris, Charles, and Stephen Haber, 2014. Fragile by Design: Banking Crises, Scarce Credit, and Political Bargains, forthcoming Princeton University Press
Calomiris, Charles, and Richard Herring, 2013. “How to Design a Contingent Convertible Debt Requirement that Solves Our Too Big To Fail Problem,” Journal of Applied Corporate Finance, Vol. 25, No. 2, Spring
Caprio, Gerard Jr., Vincenzo D’Apice, Giovanni Ferri, and Giovanni Walter Puopolo, 2010. “Macro-Financial Determinants of the Great Financial Crisis: Implications for Financial Regulation,” mimeo, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1695335
CGAP, Financial Access 2009: Measuring Access to Financial Services around the World, 2009
Chacko, G., Sjoman, A., Motohashi, H., and Dessain, V. 2006. Credit Derivatives, Philadelphia, Wharton School
Claessens, Stijn, Swati R. Ghosh, and Roxana Mihet, 2013. “Macro-Prudential Policies to Mitigate Financial System Vulnerabilities,” forthcoming, Journal of International Money and Finance.
Cohen, M. (2009) Economy in Sharpest Fall for Thirty Years. Financial Times (January 2009).
Cole, Shawn, and Gauri Kartini Shastry, If You Are So Smart, Why Aren’t You Rich? The Effects of Education, Financial Literacy, and Cognitive Ability on Financial Market Participation, October 2007
Commission européenne, B-1049 Bruxelles / Europese Commissie, B-1049 Brussel – Belgium. Telephone: (32-2) 299 11 11.
Council of Mortgage Lenders (CML) (2008) Housing and Mortgage Forecasts– December 2008
Crotty, J. 2008. ‘Structural Causes of the Global Financial Crisis: A Critical Assessment of the New Financial Architecture’, Political Economy Research Institute (PERI) Working Paper no. 180, Available at www.peri.umass.edu
Crotty, J. 2009. Profound structural flaws in the U.S. financial system helped cause the current global financial crisis, Political and Economic Weekly, vol. XLIV, no. 13, 127–35
Danielsson, Jon, Paul Embrechts, Charles Goodhart, Con Keating, Felix Muennich, Olivier Renault, and Hyun Song Shin, 2001. “An Academic Response to BaselII,” LSE Financial Markets Group, Special Paper No. 130.
DiNapoli, T. 2009. Wall Street Bonuses Fall 44% in 2008, Office of the New York State Comptroller, January 28
Education, E. C.-E. (2009). The Financial Crisis and Financial Education. Financial Services Policy and Financial Markets, 3-6
Eriksson, C (2010), ―The EU Regulatory Response to the Financial Crisis‖, Consultant report, Swedish National Audit Office
EU Directorate-General for Internal Policies, 2010. “The Interaction Between
European Commission, Public consultation on Responsible Lending and Borrowing in the EU, June 15, 2009
European Parliament, Report on protecting the consumer: improving consumer education and awareness on credit and finance (2007/2288 (INI)), October 14, 2008
Fallenbrach, Rudiger, and Rene Stulz, 2011. “Bank CEO incentives and the credit crisis,” Journal of Financial Economics, 99, 11-26.
Fallenbrach, Rudiger, and Rene Stulz, 2011. “Bank CEO incentives and the credit crisis,” Journal of Financial Economics, 99, 11-26
Financial Service Authority. (2009). The Turner Review a regulatory response to the global banking crisis
Financial Times. 2009. Summers criticized over Wall Street links, 6 April
Francis Y. Kumah, . H. (2010). Impact of the Global Financial Crisis on the Gulf Cooperation Council. International Monetary Fund.
Goodhart, Charles, 2010. “How Should We Regulate Bank Capital and Financial Products? What Role for Living Wills?” in Adair Turner and others, The Future of Finance: The LSE Report, London School of Economics,
Goodhart, Charles, 2010. “How Should We Regulate Bank Capital and Financial Products? What Role for Living Wills?” in Adair Turner and others, The Future of Finance: The LSE Report, London School of Economics. Pp. 10-17.
Haldane, Andrew, 2011, “Capital Discipline”, mimeo, speech given at the American Economic Association, Denver, Colorado.
Haldane, Andrew, 2011, “Capital Discipline”, mimeo, speech given at the American Economic Association, Denver, Colorado, January,
Herring, Richard, 2011. “The Capital Conundrum,” mimeo, The Wharton School.
Herring, Richard, 2011. “The Capital Conundrum,” mimeo, The Wharton School.
Hillman, R. J. (2009). Financial Regulation: Recent Crisis Affirms need to Overhaul. DIANE Publishing.
Housing Corporation and Government Office for London (2012). London Housing Statement 2002: Delivering Solutions
http://www.europarl.europa.eu/RegData/etudes/divers/join/2010/447501/IPOL-ECON_DV(2010)447501_EN.pdf
International Monetary Fund (2010). United Kingdom: 2002 Article IV Consultation, IMF Country Report No. 03/48 February
International Monetary Fund (IMF) (2009b), ―World Economic Outlook October 2009: Sustaining the Recovery‖, World Economic, and Financial Surveys.
International Monetary Fund, 2006. “Ireland: Financial System Stability Assessment Update, IMF Country Report No. 06/292, August.
International Organization of Securities Commissions, Objectives and Principles of Securities Regulation, February 2009
Joint Forum of Basel Committee on Banking Supervision, International Organization of Securities Commission and International Association of Insurance Supervisors, Customer suitability in the retail sale of financial products and services, April 2008
Joint Forum of Basel Committee on Banking Supervision, International Organization of Securities Commission and International Association of Insurance Supervisors, Customer suitability in the retail sale of financial products and services, April 2008
Jones, C. and Watkins, C. (2009), Planning and the Housing System, in Planning beyond 2000 (eds P. Allmendinger and M. Chapman), Wiley
Kanda, D. (2010), ―Asset Booms and Structural Fiscal Positions: The Case of Ireland‖, IMF Working Paper 10/57.
Kates, S. (2011). The Global Finacial Crisis: What Have We Learnt? Access Online Via Elgaronline.
Kim, D., and Anthony Santomero, 1994. Risk in banking and capital regulation. Journal of Finance 43, 1219-1233. Koehn, M., Santomero, A., 1980. Regulation of bank capital and portfolio risk. Journal of Finance 35, 1235-1244.
Kleimeier, Stefanie, and Harald Sander, 2007. “Integrating Europe’s Retail Banking Market: Where do we Stand,” Centre for Economic Policy Studies Working Paper 1548.
Kluwer (Boston, 2002), pp. 41-63; Lawrence J. White, “The SEC’s Other Problem,” Regulation, 25 (Winter 2002-2003), pp. 38-42
Koehn, M., Santomero, A., 2010. Regulation of bank capital and portfolio risk. Journal of Finance 35, 125-154
Laeven, Luc, and Ross Levine, 2009. “Bank Governance, Ownership, and Risk-Taking,” Journal of Financial Economics, August, 93(2), 259-275
Lehman Brothers Bankruptcy Filing, http://www.rediff.com/money/2008/sep/16lehman.pdf Accessed 07 April 2009
Lehman Brothers Holdings Inc. Announces It Intends to File Chapter 11 Bankruptcy Petition” (PDF). Lehman Brothers Holdings Inc. September 15, 2008. Retrieved 2008-09-15.
Lehman Brothers’ Bankruptcy Lessons learned for the survivors: Informational presentation for our clients. A publication of the PricewaterhouseCoopers’ Financial Services Institute (FSI). August 2009
Malta Financial Services Authority Consumer Affairs Unit, Annual Reports 2008, and 2009.
Morrison, Alan D. (2011), ‘Systemic risks and the ‘too-big-to-fail’ problem,’ Oxford Review of Economic Policy, 27(3), 498-516
Mosebach, M. (2000), ‘Regulatory avoidance in the banking industry: The case of 364-day lines of credit’, Journal of International Financial Management and Accounting, 11:3, 198-206.
Moskowitz, Tobias, and Jon Wertheim, 2011. Scorecasting: The Hidden Influences Behind How Sports Are Played and Games Are Won, New York: Crown.
Nanto, D. K. (2009). Global Financial Crisis: Foreign and Trade Policy Effects. DIANE Publishing
National Audit Office (2012), HM Treasury Resource Accounts 2011-12: The Comptroller and Auditor General’s Report to the House of Commons, July 2012.
Nicol, C. (2002). The formulation of local housing strategies: a critical evaluation, Ashgate Publishing
Norgren, Claes. The Causes of the Global Financial Crisis and Their Implications for Supreme Audit Institutions. Auditor General of the Swedish National Audit Office, Stockholm, October 2010.
Oldani, C. (2013). Global Financial Crisis: Global Impact and Solutions. Ashgate Publishing.
Paolo Savona, . J. (2013). Global Financial Crisis: Global Impact and Solutions. Ashgate Publishing
Partnoy, Frank, 1999. “The Siskel and Ebert of Financial Markets? Two Thumbs Down for the Credit Rating Agencies,” Washington University Law Quarterly Vol. 77, No 3.
Patrick Slovik; Boris Cournède (2011). “Macroeconomic Impact of Basel III”. OECD Economics Department Working Papers. OECD Publishing. doi:10.1787/5kghwnhkkjs8-en
Paul ‘t Hart, . T. (2009). Framing the Global Economic Downturn: Crisis Rhetoric and the Politics of. ANU Press.
Persaud, Avinash, 2000. “Sending the Herd Off the Cliff Edge: The Disturbing Interaction Between Herding and market-sensitive Risk Management Practices,” the Journal of Financial Risk, Vol. 2, Issue 1.
Philippon, Thomas, and Ariel Reshef, 2012. “Wages and Human Capital in the U.S. Finance Industry: 1909–2006, The Quarterly Journal of Economics, 127(4), November 1551–1609.
Powell, Andrew, 2004. “Basel II and Developing Countries: Sailing through the Sea of Standards,” Universidad Torcuato Di Tella Working Paper 06/2004.
Rafael Romeu, . N. (2011). Did Export Diversification Soften the Impact of the Global Financial Crisis? International Monetary Fund.
Remarks by Vice-Chairman Martin J. Gruenberg, United States Federal Deposit Insurance Corporation at World Bank Group Global Seminar on Consumer Protection and Financial Literacy, Washington, D.C., September 2008.
Reuben Adeolu Alabi, . A. (2011). Africa and the Global Financial Crisis: Impact on Economic Reform Processes. LIT Verlag Munster.
RicardoFfrench-Davis. (2004). Financial Crises in Successful Emerging Economies. Brookings Institution Press.
Rutledge, Susan L. (2010).Consumer Protection and Financial Literacy Lessons from Nine Country Studies. Policy Research Working Paper 5326
Sherman and Sterling LLP (2009). Governmental Assistance to the Financial Sector: an Overview of the Global Responses, Economic Stabilization Advisory Group, New York, July 2009.
Singh, D. (2011b). UK Approach to Financial Crisis Management, Transnational Law and Contemporary Problems, Winter, 872
Singh, D. (2011c) ̳The UK Banking Act 2009, Pre-Insolvency and Early Intervention: Policy and Practice‘, 1, Journal of Business Law, 20.
Sovereign Debt and Risk Weighting under the Capital Requirements Directive -as an incentive to limit government exposures,” mimeo, a compilation of briefing papers, Economic and Monetary Affairs, September,
Special Investigation Commission, 2010. “Report of the Special Investigation Commission (SIC), A Report to the Icelandic Parliament, mimeo Princeton University Press.
Special Investigation Commission, 2010. “Report of the Special Investigation Commission (SIC), A Report to the Icelandic Parliament, mimeo
Squam Lake Group, 2010. The Squam Lake Report: Fixing the Financial System, Princeton:
Staff, I. (2013). Case Study: The Collapse of Lehman Brothers. Investopedia
Strahan, Philip, 2003. “The Real Effects of U.S. Banking Deregulation, Federal Reserve
The World Bank (2012). Good Practices for Financial Consumer Protection. International Bank for Reconstruction and Development
UBS Asset Management Taps Derivatives to Hedge U.S. Debt Risk, Bloomberg.com, 10 October 2013
The United States The Financial Crisis Inquiry Report. (2011). Final Report of the National Commission on the Causes of The Financial And Economic Crisis In The United States
US Senate Permanent Subcommittee on Investigations. Senate Investigations Subcommittee Releases Levin-Coburn Report On the Financial Crisis. Homeland Security and Governmental Affairs Committee
White. Lawrence. (2012). Credit Rating Agencies and the Financial Crisis: Less Regulation of CRAs Is a Better Response. Journal of International Banking Law and Regulation
Wilmarth, A. E. (2010) ̳Reforming Financial Regulation to Address the Too-Big-To-Fail Problem‘, Brooklyn Journal of International Law, Vol. 35.
Wolf, M. (2010), ̳Basel: the mouse that did not roar‘, Financial Times, September 14
World Bank Group, Financial and Private Sector Development Vice Presidency, Payment Systems Development Group, Payment Systems Worldwide: a Snapshot. Outcomes of the Global Payment Systems Survey 2008, 2008
- Lehman Brothers Holdings Inc. Announces It Intends to File Chapter 11 Bankruptcy Petition” (PDF). Lehman Brothers Holdings Inc. September 15, 2008. Retrieved 2008-09-15. ↑
- Norgren, Claes. The Causes of the Global Financial Crisis and Their Implications for Supreme Audit Institutions. Auditor General of the Swedish National Audit Office, Stockholm, October 2010. ↑
- World Bank Group, Financial and Private Sector Development Vice Presidency, Payment Systems Development Group, Payment Systems Worldwide: a Snapshot. Outcomes of the Global Payment Systems Survey 2008, 2008 ↑
- Ibid., 32 ↑
- Ibid., 34 ↑
- Adrian, T., and H.S. Shin (2007). Liquidity, Monetary Policy, and Financial Cycles, in Current Issues in Economics and Finance, Federal Reserve Bank of New York, Vol. 14, No 1. ↑
- Joint Forum of Basel Committee on Banking Supervision, International Organization of Securities Commission and International Association of Insurance Supervisors, Customer suitability in the retail sale of financial products and services, April 2008 ↑
- International Monetary Fund (IMF) (2009b), ―World Economic Outlook October 2009: Sustaining the Recovery‖, World Economic, and Financial Surveys. ↑
- Remarks by Vice-Chairman Martin J. Gruenberg, United States Federal Deposit Insurance Corporation at World Bank Group Global Seminar on Consumer Protection and Financial Literacy, Washington, D.C., September 2008. ↑
- Kanda, D. (2010), ―Asset Booms and Structural Fiscal Positions: The Case of Ireland‖, IMF Working Paper 10/57. ↑
- UBS Asset Management Taps Derivatives to Hedge U.S. Debt Risk, Bloomberg.com, 10 October 2013 ↑
- Lehman Brothers’ Bankruptcy Lessons learned for the survivors: Informational presentation for our clients. A publication of the PricewaterhouseCoopers’ Financial Services Institute (FSI). August 2009 ↑
- Announcement of the Malta Financial Services Authority on 28th December 2011:http://www.mfsa.com.mt/pages/AdministrativeMeasuresPenalties.aspx ↑
- Lehman Brothers Bankruptcy Filing, http://www.rediff.com/money/2008/sep/16lehman.pdf Accessed 07 April 2009 ↑
- Cohen, M. (2009) Economy in Sharpest Fall for Thirty Years. Financial Times (January 2009). ↑
- Malta Financial Services Authority Consumer Affairs Unit, Annual Reports 2008, and 2009. ↑
- Ibid., 32. ↑
- Council of Mortgage Lenders (CML) (2008) Housing and Mortgage Forecasts– December 2008 ↑
- Barr, A. (2007). Lehman shuts the BNC Mortgage unit, cuts 1,200 jobs. The Market Watch. http://www.marketwatch.com/story/lehman-shuts-subprime-lending-unit-eliminating-1200-jobs ↑
- Borio, C. E. (2007) Change and constancy in the Financial system: implications for financial distress and policy. Bank for International Settlements Working Paper no. 237. October ↑
- Housing Corporation and Government Office for London (2012). London Housing Statement 2002: Delivering Solutions. Pp. 34-101. ↑
- Ibid., 99. ↑
- International Monetary Fund (2010). United Kingdom: 2002 Article IV Consultation, IMF Country Report No. 03/48 February ↑
- European Parliament, Report on protecting the consumer: improving consumer education and awareness on credit and finance (2007/2288 (INI)), October 14, 2008 ↑
- Nicol, C. (2002). The formulation of local housing strategies: a critical evaluation, Ashgate Publishing ↑
- Ibid., 21-22 ↑
- Ibid., 24 ↑
- Hillman, R. J. (2009). Financial Regulation: Recent Crisis Affirms need to Overhaul. DIANE Publishing. ↑
- Benston, George, Regulating Financial Markets: A Critique and Some Proposals, American Enterprise Institute for Public Policy and Research, 1999 ↑
- Ibid., 23 ↑
- CGAP, Financial Access 2009: Measuring Access to Financial Services around the World, 2009 ↑
- International Organization of Securities Commissions, Objectives and Principles of Securities Regulation, February 2009 ↑
- Eriksson, C (2010), ―The EU Regulatory Response to the Financial Crisis, Consultant report, Swedish National Audit Office.7-31 ↑
- Ibid., 23 ↑
- Francis Y. Kumah, . H. (2010). Impact of the Global Financial Crisis on the Gulf Cooperation Council. International Monetary Fund. ↑
- California Budget Report, Locked Out 2008: The Housing Boom and Beyond, February 2008 ↑
- Australian Government Publishing Service, The Financial System Inquiry Final Report (“Wallis Report”), March 1997. Pp. 5-11. ↑
- Ibid., 9 ↑
- Bank for International Settlements, Basel Committee on Banking Supervision, Core Principles for Effective Banking Supervision, September 1997, revised October 2006. ↑
- Cabestan, J.-P. (2012). China and the Global Financial Crisis: A Comparison with Europe. ↑
- Armstrong, Mark, “Interactions between Competition and Consumer Policy,” Competition Policy International, Volume 4, Number 1, Spring 2008 ↑
- Ibid., 12. ↑
- Benston, George, Regulating Financial Markets: A Critique and Some Proposals, American Enterprise Institute for Public Policy and Research, 1999 ↑
- Althingi Special Investigation Commission (2010), ―The Report of the Special Investigation Commission (SIC)‖, http://sic.althingi.is/ (2010-05-03). ↑
- Ibid., 2. ↑
- Authorized agents are understood to mean third parties acting for the financial services provider or in an independent capacity. They include any agents (tied and independent agents) brokers, advisors and intermediaries, etc. ↑
- ↑
- The United States The Financial Crisis Inquiry Report. (2011). Final Report of the National Commission on the Causes of The Financial And Economic Crisis In The United States ↑
- Rutledge, Susan L. (2010).Consumer Protection and Financial Literacy Lessons from Nine Country Studies. Policy Research Working Paper 5326 ↑
- Education, E. C.-E. (2009). The Financial Crisis and Financial Education. Financial Services Policy and Financial Markets, 3-6. ↑
- Cole, Shawn, and Gauri Kartini Shastry, If You Are So Smart, Why Aren’t You Rich? The Effects of Education, Financial Literacy, and Cognitive Ability on Financial Market Participation, October 2007 ↑
- European Commission, Public consultation on Responsible Lending and Borrowing in the EU, June 15, 2009. pp. 7-29 ↑
- Ibid., 12 ↑
- US Senate Permanent Subcommittee on Investigations. Senate Investigations Subcommittee Releases Levin-Coburn Report On the Financial Crisis. Homeland Security and Governmental Affairs Committee ↑
- Bean, C (2009), ―The Great Moderation, the Great Panic and the Great Contraction‖, BIS Review 101/2009. ↑
- Berkmen, P, Gelos, G, Rennhack, R and J.P. Walsh (2009), ―The Global Financial Crises: Explaining Cross-Country Differences in the Output Impact‖, IMF Working Paper 09/280. ↑
- Joint Forum of Basel Committee on Banking Supervision, International Organization of Securities Commission and International Association of Insurance Supervisors, Customer suitability in the retail sale of financial products and services, April 2008 ↑
- Commission européenne, B-1049 Bruxelles / Europese Commissie, B-1049 Brussel – Belgium. 11. ↑
- Ibid, 11 ↑
- Shin, H. S. (2009) ̳Reflections on Northern Rock: The Bank Run that Heralded the Global Financial Crisis‘, Vol. 23 (1). Journal of Economic Perspectives ↑
- Ibid., 1. ↑
- Wolf, M. (2010), ̳Basel: the mouse that did not roar‘, Financial Times, September 14 ↑
- Morrison, Alan D. (2011), ‘Systemic risks and the ‘too-big-to-fail’ problem,’ Oxford Review of Economic Policy, 27(3), 498-516 ↑
- Mosebach, M. (2000), ‘Regulatory avoidance in the banking industry: The case of 364-day lines of credit’, Journal of International Financial Management and Accounting, 11:3, 198-206. ↑
- National Audit Office (2012), HM Treasury Resource Accounts 2011-12: The Comptroller and Auditor General’s Report to the House of Commons, July 2012. ↑
- Financial Service Authority. (2009).The Turner Review a regulatory response to the global banking crisis ↑
- Ibid., 39. ↑
- Caprio, Gerard Jr., Vincenzo D’Apice, Giovanni Ferri, and Giovanni Walter Puopolo, 2010. “Macro-Financial Determinants of the Great Financial Crisis: Implications for Financial Regulation,” mimeo, 1-11. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1695335 ↑
- Ibid., 9 ↑
- Sherman and Sterling LLP (2009). Governmental Assistance to the Financial Sector: an Overview of the Global Responses, Economic Stabilization Advisory Group, New York, July 2009 ↑
- EU Directorate-General for Internal Policies, 2010. “The Interaction BetweenSovereign Debt and Risk Weighting under the Capital Requirements Directive -as an incentive to limit government exposures,” mimeo, a compilation of briefing papers, Economic and Monetary Affairs, September,http://www.europarl.europa.eu/RegData/etudes/divers/join/2010/447501/IPOL-ECON_DV(2010)447501_EN.pdf ↑
- Oldani, C. (2013). Global Financial Crisis: Global Impact and Solutions. Ashgate Publishing pp. 29-37 ↑
- Fallenbrach, Rudiger, and Rene Stulz, 2011. “Bank CEO incentives and the credit crisis,” Journal of Financial Economics, 99, 11-26 ↑
- Ibid., 14 ↑
- Ibid., 17 ↑
- Paul ‘t Hart, . T. (2009). Framing the Global Economic Downturn: Crisis Rhetoric and the Politics of. ANU Press. ↑
- Hillman, R. J. (2009). Financial Regulation: Recent Crisis Affirms need to Overhaul. DIANE Publishing. ↑
- Goodhart, Charles, 2010. “How Should We Regulate Bank Capital and Financial Products? What Role for Living Wills?” in Adair Turner and others, The Future of Finance: The LSE Report, London School of Economics, 10-17. ↑
- Ibid., 12 ↑
- Ibid., 13 ↑
- Haldane, Andrew, 2011, “Capital Discipline”, mimeo, speech given at the American Economic Association, Denver, Colorado,
- Herring, Richard, 2011. “The Capital Conundrum,” mimeo, The Wharton School. ↑
- Claessens, Stijn, Swati R. Ghosh, and Roxana Mihet, 2013. “Macro-Prudential Policies to Mitigate Financial System Vulnerabilities,” forthcoming, Journal of International Money and Finance. ↑
- Ibid., 12. ↑
- Haldane, Andrew, 2011, “Capital Discipline”, mimeo, speech given at the American Economic Association, Denver, Colorado. ↑
- Herring, Richard, 2011. “The Capital Conundrum,” mimeo, The Wharton School. Pp. 19-35 ↑
- Ibid., 32 ↑
- Ibid., 23 ↑
- Ibid., 28 ↑
- Haldane, Andrew, 2011, “Capital Discipline”, mimeo, speech given at the American Economic Association, Denver, Colorado. ↑
- Goodhart, Charles, 2010. “How Should We Regulate Bank Capital and Financial Products? What Role for Living Wills?” in Adair Turner and others, The Future of Finance: The LSE Report, London School of Economics ↑
- Patrick Slovik; Boris Cournède (2011). “Macroeconomic Impact of Basel III”. OECD Economics Department Working Papers. OECD Publishing. doi:10.1787/5kghwnhkkjs8-en ↑
- Ibid., 21 ↑
- Fallenbrach, Rudiger, and Rene Stulz, 2011. “Bank CEO incentives and the credit crisis,” Journal of Financial Economics, 99, 11-26. ↑
- Danielsson, Jon, Paul Embrechts, Charles Goodhart, Con Keating, Felix Muennich, Olivier Renault, and Hyun Song Shin, 2001. “An Academic Response to BaselII,” LSE Financial Markets Group, Special Paper No. 130. ↑
- White. Lawrence. (2012). Credit Rating Agencies and the Financial Crisis: Less Regulation of CRAs Is a Better Response. Journal of International Banking Law and Regulation ↑
- Kluwer (Boston, 2002), pp. 41-63; Lawrence J. White, “The SEC’s Other Problem,” Regulation, 25 (Winter 2002-2003), pp. 38-42 ↑
- Koehn, M., Santomero, A., 2010. Regulation of bank capital and portfolio risk. Journal of Finance 35, 125-154 ↑
- Ibid., 125 ↑
- Kates, S. (2011). The Global Finacial Crisis: What Have We Learnt? Access Online Via Elgaronline. ↑
- Ibid., 34. ↑
- Oldani, C. (2013). Global Financial Crisis: Global Impact and Solutions. Ashgate Publishing. 79-109 ↑
- Ibid., 98 ↑
- Hillman, R. J. (2009). Financial Regulation : Recent Crisis Affirms need to Overhaul. DIANE Publishing ↑
- Ibid., 112 ↑
- Ibid., 117 ↑
- Laeven, Luc, and Ross Levine, 2009. “Bank Governance, Ownership, and Risk-Taking,” Journal of Financial Economics, August, 93(2), 259-275 ↑
- Oldani, C. (2013). Global Financial Crisis: Global Impact and Solutions. Ashgate Publishing pp. 29-37 ↑
- Ibid., 32 ↑
- Singh, D. (2011c) ̳The UK Banking Act 2009, Pre-Insolvency and Early Intervention: Policy and Practice‘, 1, Journal of Business Law, 20 pp. 21-39 ↑
- Ibid., 32 ↑
- Ibid., 33 ↑
- Moskowitz, Tobias, and Jon Wertheim, 2011. Scorecasting: The Hidden Influences Behind How Sports Are Played and Games Are Won, New York: Crown. 12-29 ↑
- Ibid., 21 ↑
- Nanto, D. K. (2009). Global Financial Crisis: Foreign and Trade Policy Effects. DIANE Publishing pp. 7-147 ↑
- Ibid., 78 ↑
- Ibid., 122 ↑
- ↑
- Kates, S. (2011). The Global Finacial Crisis: What Have We Learnt? Access Online Via Elgaronline. ↑
- International Monetary Fund, 2006. “Ireland: Financial System Stability Assessment Update, IMF Country Report No. 06/292, August. ↑
- Crotty, J. 2009. Profound structural flaws in the U.S. financial system helped cause the current global financial crisis, Political and Economic Weekly, vol. XLIV, no. 13, 127–35 ↑
- Ibid., 101 ↑
- Ibid., 112 ↑
- Kim, D., and Anthony Santomero, 1994. Risk in banking and capital regulation. Journal of Finance 43, 1219-1233. Koehn, M., Santomero, A., 1980. Regulation of bank capital and portfolio risk. Journal of Finance ↑
- Kleimeier, Stefanie, and Harald Sander, 2007. “Integrating Europe’s Retail Banking Market: Where do we Stand,” Centre for Economic Policy Studies Working Paper 1548. ↑
- Becker, J., and Morgenson, G. 2009. Geithner, as Member and Overseer, Forged Ties to Finance Club, New York Times, 27 April ↑
- Ibid., 14 ↑
- Financial Times. 2009. Summers criticized over Wall Street links, 6 Apri ↑
- Partnoy, Frank, 1999. “The Siskel and Ebert of Financial Markets? Two Thumbs Down for the Credit Rating Agencies,” Washington University Law Quarterly Vol. 77, No 3. ↑
- DiNapoli, T. 2009. Wall Street Bonuses Fall 44% in 2008, Office of the New York State Comptroller, January 28 ↑
- Ibid., 32 ↑
- Persaud, Avinash, 2000. “Sending the Herd Off the Cliff Edge: The Disturbing Interaction Between Herding and market-sensitive Risk Management Practices,” the Journal of Financial Risk, Vol. 2, Issue 1. ↑
- The World Bank (2012). Good Practices for Financial Consumer Protection. International Bank for Reconstruction and Development ↑
- Philippon, Thomas, and Ariel Reshef, 2012. “Wages and Human Capital in the U.S. Finance Industry: 1909–2006, The Quarterly Journal of Economics, 127(4), November 1551–1609. ↑
- Crotty, J. 2008. ‘Structural Causes of the Global Financial Crisis: A Critical Assessment of the New Financial Architecture’, Political Economy Research Institute (PERI) Working Paper no. 180, Available at www.peri.umass.edu ↑
- Ibid., 89 ↑
- Ibid., 102 ↑
- A Demon of Our Own Design: Markets, Hedge Funds, and the Perils of Financial Innovation, Hoboken, New Jersey, John Wiley & Sons ↑
- Ibid., 113 ↑
- Ibid., 115 ↑
- Powell, Andrew, 2004. “Basel II and Developing Countries: Sailing through the Sea of Standards,” Universidad Torcuato Di Tella Working Paper 06/2004. Special Investigation Commission, 2010. “Report of the Special Investigation Commission (SIC), A Report to the Icelandic Parliament, mimeo ↑
- Ibid., 9. ↑
- Ibid., 12 ↑
- Partnoy, Frank, 1999. “The Siskel and Ebert of Financial Markets? Two Thumbs Down for the Credit Rating Agencies,” Washington University Law Quarterly Vol. 77, No 3. ↑
- Philippon, Thomas, and Ariel Reshef, 2012. “Wages and Human Capital in the U.S. Finance Industry: 1909–2006, The Quarterly Journal of Economics, 127(4), November 1551–1609. ↑
- Francis Y. Kumah, . H. (2010). Impact of the Global Financial Crisis on the Gulf Cooperation Council. International Monetary Fund. ↑
- Persaud, Avinash, 2000. “Sending the Herd Off the Cliff Edge: The Disturbing Interaction Between Herding and market-sensitive Risk Management Practices,” the Journal of Financial Risk, Vol. 2, Issue 1. ↑
- Furthermore, reforms to OTC derivatives markets were found to have supplemented that by a further 0.1% of GDP. By making the system simpler, these reduce the probability of crises. ↑
- Basel Committee on Banking Supervision (2010a). ↑
- Brown, O. W. (2009). Financial Markets Regulation:Financial Crisis Highlights Need to Improve. DIANE Publishing. ↑
- Ibid., 23 ↑
- See Basel Committee on Banking Supervision (2010b). ↑
- Reuben Adeolu Alabi, . A. (2011). Africa and the Global Financial Crisis: Impact on Economic Reform Processes. LIT Verlag Munster. ↑
- Powell, Andrew, 2004. “Basel II and Developing Countries: Sailing through the Sea of Standards,” Universidad Torcuato Di Tella Working Paper 06/2004. 1-17. ↑
- Ibid., 12. ↑
- Special Investigation Commission, 2010. “Report of the Special Investigation Commission (SIC), A Report to the Icelandic Parliament, mimeo ↑
- Sun, W. (2011). Corporate Governance and The Global Financial Crisis. Cambridge University Press. ↑
- Squam Lake Group, 2010. The Squam Lake Report: Fixing the Financial System, Princeton: Princeton University Press. ↑
- Ibid., 119 ↑
- Schuerkens, U. (2012). Socioeconomic Outcomes of the Global Financial Crisis. ↑
- Strahan, Philip, 2003. “The Real Effects of U.S. Banking Deregulation, Federal Reserve Bank of St. Louis Review, July/August. ↑
- RicardoFfrench-Davis. (2004). Financial Crises in Successful Emerging Economies. Brookings Institution Press. ↑
- Reuben Adeolu Alabi, . A. (2011). Africa and the Global Financial Crisis: Impact on Economic Reform Processes. LIT Verlag Munster. ↑
- ↑
- Ibid., 11 ↑
- Chacko, G., Sjoman, A., Motohashi, H., and Dessain, V. 2006. Credit Derivatives, Philadelphia, Wharton School ↑
- See Macroeconomic Assessment Group on Derivatives (2013). ↑
- Rafael Romeu, . N. (2011). Did Export Diversification Soften the Impact of the Global Financial Crisis? International Monetary Fund. ↑
- Paolo Savona, . J. (2013). Global Financial Crisis: Global Impact and Solutions. Ashgate Publishing ↑
- Paul ‘t Hart, . T. (2009). Framing the Global Economic Downturn: Crisis Rhetoric and the Politics of. ANU Press. ↑
- Blanaru, C.-A. (2013). Financial Products Consumer Protection in the times of a Crisis. Post Doctoral Studies in Economics, 1-5. ↑
