The Impact of Global Financial Crisis on the UK Banking Industry

The Impact of Global Financial Crisis on the UK Banking Industry

Chapter One

Aim and objectives of the study

The main aim of this study is to examine the impact of the global financial crisis on the UK banking industry.

Specifically, the study sought to:

Determine the implication of the global financial crisis on banks performance.
Determine the extent of the impact of the global financial crisis on the UK banking industry.
Identify the factors responsible for the global financial crisis in the UK banking industry

CHAPTER TWO

LITERATURE REVIEW

Conceptual framework

Financial Crisis

A financial crisis is a sudden wide-scale drop in the value of financial assets, or in the financial institutions managing those assets (and often in both). A financial crisis may be triggered by a variety of factors, but the situation is typically aggravated by negative investment sentiment, fear or panic. A financial crisis often sparks a vicious circle where an initial decline sparks fear by investors that other investors will pull their money out leading to redemptions and increasing declines.

The Global Financial Crisis.

Bernanke (2015) defined Global Financial Crisis as a worldwide economic downturn. It is a period of general decline or depression in economic activity characterised by mass unemployment, general fall in in profits, wages, interest rate, consumption, expenditure, investment, bank deposits and loans, factories closure and construction of all types of capital goods come to a standstill.

Impact on the UK Banking System

In a globalised world, transactions are carried out in different countries in integrated markets. The world has over the past two decades headed towards liberalisation and deregulation, with the goal of integrating world markets. UK markets, although not well integrated into the world market, have been facing serious destabilising effects since the emergence of the global financial crisis in July 2008. The capital market has been shrinking: major international hedge funds have been withdrawn; and the international credit line has faded out of loadable funds for domestic industry. Soludo (2009) summarised the impact as follows:

Tightening of liquidity due to net forex outflows and lower monetization of oil earnings
Further tightening of liquidity as lines of foreign credits enjoyed by UK banks were called in.
Depression of the capital market and drop in the quality of part of the credit extended by banks for trading in the capital market (liquidity pressures as loans not fully serviced or repair)
Greater loan-loss provisioning both due to capital market pressures and decline in growth of economic activities.
Potential exchange rate risks on foreign lines due to depreciation of the exchange rate
Liquidity pressures push up domestic interest rates which if not addressed could pose systemic threat
Global credit crunch and re-pricing of risks push up interest rates on lines of banks’ balance sheet in response to the crisis and higher provisioning, leading to lower profitability.

Theoretical Framework

New Classical Macroeconomics Theory

Hoover (2013) believes that the New Classical Macroeconomics suggests a rejection of the Keynesian economics and a revival of classical economics, the new classical school began with Lucas (1981) attempts to provide micro foundations for the Keynesian labour market.

CHAPTER THREE

Research Design

Nachmias and Nachmias (1984) observed that, research design is a blueprint crafted to address problems to scientific inquiry.

This study will adopt a longitudinal survey design in obtaining, analyzing and interpreting data.

Data sources

For this project data will be collected from the Thomson Reuters Eikon for all financial companies listed in UK Stock Exchange.

Population and sampling procedure

The research is designed to examine the impact of global financial crisis on the UK banking industry. All financial companies listed in UK Stock Exchange will be used as study population and sample size.

CHAPTER FOUR

DATA ANALYSIS TECHNIQUES

The model designed for this study, which explains the relationship between global financial crisis and the UK banking industry is given as:

NSM = f[FOREX, INRATE, EXREV, FORIN]

In order to eliminate abnormality in the data to be generated, and to avoid heterosedacticity of the data, the data will be transformed into logarithm resulting in the model shown below.

LogUKSM = f[α₀Log + b₁LogFOREX + b₂LogINRATE + b₃LogEXREV + b₄LogFORIN]

CHAPTER FIVE

EXPECTED OUTCOME

By the completion of section four, we are expecting to examine the impact of global financial crisis on the UK banking industry.

POTENTIAL CONTRIBUTION OF THE STUDY

The report of this study would be adopted by policy planners, government agencies, financial analysts and the masses. Apart from contributing new knowledge to academic discipline, the study serve as a good secondary data for other researchers who might be interested in conducting a further similar research in the area of the impact of the Global Financial Crisis.

REFERENCES

Abubakar, M. (2008) ‘The Implication of Global Financial Crisis on International Marketing’ Unpublished M.Sc. Assignment on International Marketing Bayero University, Kano.
Adamu A. (2019) “the effects of Global Financial Crisis on Nigeria Economy” [email protected]
Adamu, A. (2019) „The Effects of Global Financial Crisis on Nigerian Economy‟ [online]
Ajakaiye, O and Fakiyesi, T (2019)”Global Crisis Discussion Series,” paper8: Nigeria
Avgouleas, E. (2008) ‘Financial Regulation, Behavior Finance, and the Financial Credit Crisis in Search of a New Regulatory Model’ Retrieved from http;//papers.ssrn.com on 20/11/08.
Avgouleas, E. (2008) „Financial Regulation, Behaviour Finance, and the Financial Credit Baker, Dean (2008) “The housing bubble and the financial crisis,” Center for Economic and Policy Research.
ECA and APF (2008) Development finance in Africa: from Monetary to Doha. Document prepared by the Economic Commission for Africa and Africa Partnership forum for the Eleventh meeting of the African Partnership Forum, held on 17-18 Nov. 2008
Goodhart, C.A.E., (2008) “The background to the 2007 Financial Crisis”, International Economics and Economic Policy 4 pp 331-346
Han, K.C; Lee, S.H., and Suk, D.Y., (2008), “Mexican Peso Crisis and its Spillover effects to emerging market debt”, Emerging markets Review 4, Issue 3, 310-326
Mizen, P. (2008)”The Credit Crunch of 2007-2008: A discussion of the background market reactions and policy responses”, Federal Reserve Bank of St. Louis Review 90, Issue 5, p531567

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