The changes in the regulation of UK governmant

The most original of these new institutions is the Financial Policy Committee which has been created to perform macro-prudential regulation. Andrew Crockett (Speech reference) defines the objective of macro-prudential regulation as “… limiting the likelihood of the failure, and corresponding costs, of significant portions of the financial system”, essentially examining the systemic risks. The implication being that regulation will focus on reducing the risk of correlated failures and focus on institutional factors such as size and importance to the economy. Andrew Haldane (Speech reference) describes macro-prudential regulation as the missing policy link during the pre-crisis period. The FPC’s current task, simply put, is to keep the system safe in the face of heightened risks of a relapse, while at the same time keeping the banks’ credit arteries open to support the economy. The FPC will do this by monitoring systemic risks attributable to structural features or distribution of risk within financial markets while also monitoring unsustainable levels of leverage, debt or credit-growth. The hope being that should a situation arise where banks’ balance sheets become as bloated as before the crisis that the FPC will be able to spot it and take action to cool the market. Where before individual institutions were given clean bills of health the FPC will measure the health of the whole industry to see if it is as great as the sum of its parts.

Another major change occurring within the Bank of England can be seen in its service as a lender of last resort. The Bank has begun accepting a much wider range of assets to be used as collateral when accessing Bank liquidity. Bagehot (1873), a critic of the Bank, was a key figure in the introduction of the lender of last resort facility. However, for Bagehot specific criteria had to be met. These included the bank in question being solvent but temporary illiquid and supplying good collateral before being allowed to borrow at a penalised rate. This change in procedure by the Bank is, in the mind of the authors, appropriate during the panic that was the initial credit crunch but wholly unworthy of becoming a permanent feature.

To sum up,although we have adopt many effective measures to alleviate the effects which come from the financial crisis. But there still so many thing we have to face. For example, we found dramatic breakdowns of corporate governance, profound lapses in regulatory oversight, and near fatal flaws in our financial system. We also found that a series of choices and actions led us toward a catastrophe for which we were ill prepared. These are serious matters that must be addressed and resolved to restore faith in our financial markets, to avoid the next crisis, and to rebuild a system of capital that provides the foundation for a new era of broadly shared prosperity.

If you want to know about the current financial crisis, you may like to read these:

HM Treasury (2011) A new approach to financial regulation: building a stronger system. Presented to Parliament by the Financial Secretary to the Treasury by the Command of Her Majesty. February 2011.

Chambers-Jones, C. (2011) The Vickers report. Business Law Review, 32 (11). pp. 280-292.

Hickson C. R, Turner J. D (2003) The Trading of Unlimited Liability Bank Shares in Nineteenth-Century Ireland: The Bagehot Hypothesis. The Journal of Economic History. Vol 63, No. 4, pp 931-958

Goodhart, C.A.E. Law and Financial Markets Review, Volume 6, Number 1, January 2012 , pp. 32-38(7)

Acheson G. G, Turner J. D (2006) The Impact of Limited Liability on ownership and control. Irish Banking, 1877-1914. Economic History Review, LIX, 2, pp. 320–346

The influence of financial crisis in UK

The influence of financial crisis in UK

1 The banking in UK

The par value of England bank have a great decrease and heavy debt. Since 2008 to 2009, the market value of banks all over the world have dropped suddenly.

Until now, The percentage of government loan and GDP is 54%. If the value of bank continue shrink, government will rescue the bank which means the percentage will be doubled or tripled in this situation. It will cause the UK’s creditworthiness dive to below 3A. Once this happened, citizens begin to dump pounds and the pound crisis will happen.

                                            The decrease of market value

2 The value of Pound

The value of Pound decline persistently. The exchange rate between Pound and Dollar has decreased 27% since 2008. At the same time, the range of exchange rate between Euro and Pound increased over 32%. It means the exchange rate between Euro and Pound is close to fair price.

3 The subprime mortgage lending institutions in UK

With the influence of subprime crisis in USA, the profits of British subprime lending institutions fell sharply. Lead in these institutions, depositors who have saving accounts in these institutions began to pick up cash insanely. And while a number of banks have stopped offering credit cards to the debt-challenged, there are still companies handing out subprime plastic. This makes the subprime lending institutions cannot achieve a balance of payment. There will be more and more subprime lending institutions forced to file for bankruptcy.

4 The enterprises in UK

The enterprises in UK are suffering a formidable situation. For example, The MARKS AND SPENCER. Compare with 2010,The year’s sales figures in 2011 is reduced by 7.1%. Then in Jan. 7th ,2011,The company announced that they will closed their 25 food stores in UK. There are more enterprises have the same situation in UK.

5 The people's life
After the financial crisis happened, the prices of products is higher than before. Such as milk, eggs,meat, vegetables, even the cooking oil. All of these products' prices were increasing. They can not afford it any more. They have to living with austerity. And  also because the crisis, some companies bankrupt one by one ,more and more people lose their job. This made the situation more worse.  It looks like a vicious circle.

In my next blog, I will talk about the measures of UK government during the crisis.

The Cause of Financial Crisis

There are many reasons for the financial crisis in the world. The main reasons I think are those three below:

①American’s ‘low deposit and high consumption’ characteristic

The main reason is the pattern of American’s economy. In a long period, the characteristic of American’s economy is low deposit and high consumption. Especially in current years, the prices of real estate are increasing, and the cost of lending interest rate is very low. This situation made more and more American populace enter to the real estate industry. The optimistic expectation on house prices rising facilitated banks leave no stone unturned to low-line credit customers provide the housing loan. At the same time, local people in America can use the housing mortgage loan for refinancing to get more loans. Since 2001 to 2005, the private homeowner get over one trillion dollars for there daily spending from sell there house, housing loan or mortgage refinancing. The accumulation of American’s capital is negative, more and more citizens encumbered with debts. Spend tomorrow’s money on today’s life is not only become a fashion but also a kind of primary movement.

②The overflow of financial derivatives　 

The so-called financial derivatives is means with the help from financial intermediary ,the lenders in America change the secondary housing loans into the listed security which can sale and circulate in the markets. In this way, the government continued securitization of mortgages and make sure that this kind of security can trade and circulate in the global economy markets. Which means the housing loan problem is change into a global problem from an area problem. 

③The contempt of government intervention

In a long period, American practice the free-market economy, they repose too much confidence in the ability of self-discipline and self-control. Under the thoughts of new-liberalism, the main target of economy policy is trying the best to reduce the government intervention on social economy. They undue stress on the function and effect of the market mechanism and despise the importance of government intervention in the economy and social progress. This is one of the significant reasons for financial crisis.

In my next blog, I will talk about the influence of financial crisis in different aspect.

The Financial Crisis

Financial crisis refers to the crisis in financial asset or institutions or financial market. The specific expression is the plummet of financial asset price or the bankruptcy of financial organization or the stock market crash.The financial crisis can be divided into currency crisis, debt crisis and banking crisis. In recent years, the trend of financial crisis is the hybrid type.


The influence of financial crisis is far-reaching. Due to the appearance of financial crisis, the price of monetary devalued, the economic aggregate and the scale of economy curtail. Then a mass of enterprises went into liquidation and lots of people lose their job. Sometimes the financial crisis bring the social instability and political change.


Recent years ,the most serious one is the financial crisis in 2008. The powder hose of this crisis is the US subprime mortgage crisis. In the August of 2007, the fifth biggest investment bank Bear Stearns declared bankruptcy, marked the erupt of subprime crisis. And the “two house crisis” means the US subprime crisis went to a new stage. In September of 2008, with the bankruptcy of Lehman Brothers and the financial distress in AIG(American International Group Inc), the full-blown panic erupted. After the Lehman Brother filed for bankruptcy, the US financial crisis moves at a rate that exceeds financiers’ expectation. No more than two weeks the crisis extends to the Europe. At the same time the European powers can not trust each other and blamed each other made the market sank in an extremely panicked. Because of the global financial market is have close connection, so the US subprime cause the financial work up to the world. The global financial market fall into an unprecedented crisis. In my next blog, I will talk about the reasons of financial crisis in UK in 2008.