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Banking Crisis in the United Kingdom

The banking sector is one of the most sensitive sectors of the economy of any developing or developed nation. This sector comprises of the commercial and investment banks, the central bank governed by the government, the financial markets an all other money lending organizations (House of Commons, 2009, p.2). The global banking industry has in the recent past been faced with huge crisis unlike in the preceding years.

The rapid globalization rate which has come in hand with many positive and negative impacts can be attributed to have contributed to the current global banking crisis. Research done over the past 30 years indicate that there have been about 117 cases of systemic crisis and 51 episodes of the non-systemic crisis throughout the world. The most interesting thing is that when banking crises arise, people have their own views on who to blame for its occurrence. The crisis could be as a result of having a nation whose people over rely on credit or a government with poor legislation governing the banking sector or simply the bankers have become greedy and want to become rich in a fortnight (House of Commons,2009, p.3). Regardless of who to blame for any banking crisis, the impact is felt by all who depend on that economy.

Nevertheless, the banking crises have been mostly reported in the developed nations in which the United Kingdom is no exception. Just like the other developed nations of the world, the United Kingdom has suffered major crisis in its banking sector that calls for great intervention. It was as a result of the banking crisis in the UK that it dropped down from being on the top list of worlds’ best economies. This was because the pound could not compete well with the dollar given its drop in market value.

The United Kingdom is endowed with many commercial banks which operate both locally and globally. Some of the major banks operating in the United Kingdom include; Northern Rock bank which is a mortgage bank, Nationwide Building Society, The Co-operative bank of UK, Standard and Chattered bank and HSBC bank just to mention but a few. Due to the fact that the banking crisis of a nation may have a great impact on its economy as well as other countries, the government of such a nation should be able to intervene so as to minimize the impact. The government of the United Kingdom has been very supportive to the financial sector when it suffers any sought of crisis.

For example in the year 2007 when Northern Rock bank suffered crisis, the government intervened by guaranteeing all the deposits of the bank made by their customers. This was a good move of ensuring that the bank did not collapse but instead recovered and rose up once again. If not properly looked at, the banking crisis will lead to the collapse of most of the UK banks (House of Commons, 2009, p.6). Some of the major cause of actions that the UK government has taken to curb the banking crisis will be discussed later in the paper.

The root causes of the banking crisis in the United Kingdom are many and diversified. The major documented causes include the low real interest rates that are offered by the banks, high liquidity, greed for high profits and lack of innovation in the banking industry. The most important thing to note about the banking crisis is that they are majorly caused by the commercial banks themselves.

The current banking crisis in the United Kingdom was majorly caused by the US subprime mortgage crisis that blossomed out in the year 2007 hence affecting the whole globe as a whole. This is a fact that has remained unknown to many people, despite having so much impact on the globe. The subprime mortgage crisis in the United States of America began with the breakdown of the housing bubble where the people who had borrowed money could not repay the loans hence defaulting most of the mortgages (Dimsdale, 2010, p.2). As a result, the market lost its liquidity making the banks struggle to find funds hence the huge losses.

When crisis occur in the banking system, the banking rates go down, banks become prone to fast loss of money and instead of concentrating on their customers the banks turn to protecting the little capital left. In the case of the United Kingdom, the commercial banks have been accused of exploiting their customers in a bid to retrieve back the money they have lost. The banks have been focusing on making profits in the short-run as well as the banker bonuses as a way of recovering their losses from the customers.

The extremity of the banking crisis is so much that the government has recently announced to the banks to operate the retail and investment banking separately so as to take care of the innocent customers. It ought to be well understood that the face of the banking sector in the United Kingdom has changed (Dimsdale, 2010, p.2). Since the change has been to the worse, intervention is necessary so that it goes back to the initial status. Something needs to be urgently done so that the customers can have faith in the banks again and other banks regain the trust they had with the UK banks.

This paper therefore looks at the banking crisis facing the United Kingdom as well as having a detailed look at the UK banks. The major stages of the banking crisis are summarized beginning with the key reason which is the subprime mortgages of the United States of America leading to the impacts on the banks as well as the financial market (House of Commons, 2009, p.7). The paper will further have a close look at the interaction of the UK banks with other banks of the world.

The impact of the banking crisis on the economy of the United Kingdom will also be discussed. The recent concern on the current crisis is briefly reviewed as well as other issues that have been caused by the baking crisis. The paper then concludes by critically reviewing the objectives and lessons learnt about the UK banking system and its ordinance from the market turmoil.

Reference List

Dimsdale, N. (2010). The International Banking Crisis and British Experience. Web.

House of Commons. (2009). Banking Crisis: dealing with the failure of the UK banks. Web.

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