Essay: Role of Banks in the Financial Sector of UK

Sample Essay

By any standards, February was a momentous month for UK banks listed on the London Stock Exchange. For starters, their number shrank from nine to eight as Northern Rock finally gave up the unequal struggle to remain a quoted company and was shifted into “temporary public ownership”.

The first nationalization of a High Street bank in living memory meant the focus on the sector’s annual reporting season would attract far more scrutiny than usual. Northern Rock was the first and most obvious British casualty of the US sub-prime mortgage crisis. As a former building society, it was hit not by its direct exposure to those markets and their spin-off debt instruments but to the virtual closure of the funding side of the money markets, which forced it to go cap in hand to the Bank of England last summer, and the subsequent run on the bank (Acharya 2009).

To be precise, August 2007 was the year when the world started to feel the crunch that the economy was resisting for a long time. The catastrophic monetary and financial troubles had their birth from a sharp reduction in credit (Brunnermeier 2009).  This reduction in credit has grown in size multiple times now and has turned out to be of dire concern since the first recession in 1930. In 2000 a narrow fall in the stock markets and the rise of the techno-bubble that erupted some time back has been the main cause of this financial crisis.

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