US Financial Crisis: Effects on UK Banks



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Code : ECC0020

Year :
2008

Industry : Banking, Insurance and Financial Services

Region : UK

Teaching Note: Available

Structured Assignment : Available

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Abstract: This case study was primarily written to raise a debate on whether UK has lost another industry to the unwarranted market forces. Many argue that UK had been losing its preeminence in one industry after another. Starting with the textile industry, many industries in the UK have lost their competitive edge. The US Financial Crisis (2008) along with the subprime crisis (2007) seemed to have delivered a severe blow to UK's banking sector. In September 2007, Northern Rock sought liquidity support from the government, as it failed to raise capital in the open market. Consequently, Northern Rock was nationalised. Eventually, most of the top banks in Britain, like Royal Bank of Scotland, that were solvent and well-capitalised collapsed suddenly in 2008. As the financial debacle was fast spreading across all the banks the UK government adopted desperate measures to contain the crisis. On April 21st 2008, BoE announced a 50 billion 'special liquidity scheme' that focused on transfer of high-quality government debt for high-risk commercial bank mortgage debt. This amount was later increased to 200 billion. The government also guaranteed wholesale liabilities to the tune of 250 billion for a period of 6 months with a possible extension.

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Pedagogical Objectives:

  • To understand the rise of UK banks and their role in international finance and trade
  • To assess the impact of the US Financial Crisis on UK banks and problems emerging with it
  • To analyse if the steps taken by Gordon Brown's administration are adequate to save UK banking sector from the fallout.

    Keywords : Economic Crisis Case Study, Financial Crisis, Subprime Mortgage Business, Mortgage Backed Securities (MBS), Credit Default Swaps (CDS), Collateral Debt Obligations (CDOs), Global Banking, UK International banking, UK financial system, European banks, Northern Rock, Bradford & Bingley, Royal Bank of Scotland, Gorden Brown

    Contents :
    United Kingdom Traditional Hub of International Finance
    International Finance Rise of UK Banks and Other Financial Entities
    US Financial Crisis Impact on UK Banking Sector
    Strategies Adopted by UK's Policy Makers A Risky Bet?


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