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The Working of Banking System in Pre-Recession Phase: The Case of Barclays - Essay Example

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The paper proposes certain structural changes in banking system and the regulatory guidelines to prevent credit crisis in future. The case of Banking giant Barclays is discussed. The paper examines how the policies of Barclay bank to not to take government aid was beneficial in handling mortgage crisis…
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The Working of Banking System in Pre-Recession Phase: The Case of Barclays
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Download file to see previous pages This research will begin with the statement that innovations in banking sector, which accelerated in last 15 years are partly responsible for micro imbalances, which emerged when the developing nations accumulated large current account surplus and the large current account deficit emerged in USA, UK, Ireland, Spain and other countries. According to Dennis Blair , director of U.S. National Intelligence , the implications of financial crisis “ the primary security concern of US, longer it takes for recovery , the greater is the likelihood of serious damage to US strategic interests”. Barclays PLC is a universal multination banking and financial services company, which was 10th largest bank in 2010 and has operation in more than 50 countries. The bank has total assets of €1.94 trillion (as on June 2010) and it organizes two businesses Corporate & Investment Banking and Wealth Management, and Retail & Business Banking. In 2007, the bank was forced to borrow £1.6bn from the Bank of England. UK government planned to induce over £7 billion in Barclay (Reuter reports) in 2009, but the bank rejected the government offer and instead raised £6.5 billion of new capital through cancellation of dividends and private investors. The bank cut 1400 jobs in first half of 2011 and another 1600 in 2011 and the CEO, Robert Diamond claimed the bank is now back on track. During the banking crisis Barclays invested of £800million i.e. $1.64bn in risky US home loans and it cut 2,130 positions across its investment banking and investment management divisions, and about 2,000 job cuts in retail. In U.S. securitised credit corporate bonds played a major role in mortgage lending and it also led to the formation of Fannie Mae, in 1930, and it saw an explosive growth in terms of scale and complexity from mid-1990, which supported - 1. High growth in the stock value and total stock credit securities. 2. The rise in complexity of securities, which were sold and the growth of structured credit products. 3. Explosion of volume of credit derivatives, which enabled investors and traders to hedge underlying credit exposure, which created synthetic credit exposures The financial ...Download file to see next pagesRead More
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