This study aims to analyse the need of regulatory framework for the UK banking system in order to ensure financial stability and reduction of usage of public funds for recurring crisis; to determine the effect of corporate social responsibility and ethics hazards on the banking system and regulators to mitigate banking failures…
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The research is based on the recent International financial crisis of UK banking system 08/09, which failed to adhere to existing financial and national regulations. The significant impact of shadow banking system that facilitates complex financial structures, derivatives and asset securities have resulted in extreme trading risk as compared to the normal banking operations. The banking system is regulated by the competition commission, which summon operations of the banks towards a complex monopoly for banking giants as compared to the smaller banks. Banking failures are termed as shutting down the operations of the bank due to inability of paying of its depositors or have lesser funds to meet its creditors and regulators obligations. The distributions of its assets and liabilities are evident due to insolvency of the bank which implicit that its assets are undervalued as compared to its liabilities at market value. The banking regulations are accredited by three organisations mainly FSA (Financial Services Authority), Treasury and Bank of England. The interventions of the regulators were limited to aggressive situations only but since the banking crisis, the regulators are alarmed with the current regulation system. The most critical drawback for increased regulations in United Kingdom is enforcement of international banks to operate in lesser regulated environment offshore. This could result in a huge impact on the employment and financial institution of the country and across the globe. (Buckle & Thompson, pp. 333-345, 2005). The banking system is adhered to principle based approach as compared to the U.S rules based regulatory system. The FSA regulates promotion of efficient and rational financial services to its consumers and to achieve its objective, it ensures standards are in place for the operational activities of banks and financial institutions (Buckle & Thompson, pp. 333-345, 2005). The banking stability in UK is adhered to the Banking Act (2009), which implicit that influential organisations can be held responsible for taking control over the bank in midst of crisis and banking regulations (Parliament, 2010). It also stimulates that in case of bankruptcy of failure of banking system the ownership is controlled under public or government organisation such as Bank of England and Treasury. This has led in recent downfall of financial institutions like Northern Rock, which was rescued by the Bank of England and later on sold to Virgin group. This could be termed as failure in banking system of the oldest British financial institution during the 08/09 financial crunch (Buckle & Thompson, pp. 333-345, 2005). 2. Literature Review The British Banking system has been subject to prudential regulations for quite a long time but is now affirmative in accepting a shift to integrated system, which divulges a single regulator controlling the entire financial intuition sector. According to Buckle and Thompson (2005), the banking failure was apparent since the Great Depression of 1920 when numerous banks and financial institutions collapsed due to failure of regulators and lack of compliance of banking legislations. The British banking sector was not affected with the major crisis until 1973, when Bank of England rescued several secondary banks that were strongly depended on heavy deposits due to intra-bank
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