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What specific events and aspects of the banking crisis demonstrate that a successful strategy for a few can be an unsuccessful strategy for the many Give specific examples of such a strategy from the banking sector - Essay Example

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Give specific examples of such a strategy from the banking sector
The banking sector has undergone a revamp with rescue funds…
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What specific events and aspects of the banking crisis demonstrate that a successful strategy for a few can be an unsuccessful strategy for the many Give specific examples of such a strategy from the banking sector
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Extract of sample "What specific events and aspects of the banking crisis demonstrate that a successful strategy for a few can be an unsuccessful strategy for the many Give specific examples of such a strategy from the banking sector"

Download file to see previous pages The banking business is comparatively less enthusiastic than investment and insurance management because they do not envisage a sustained growth and are not lending adequately to medium and small business. The reason for poor lending may be due to lesser demand for credit owing to recession or the relunctance of banks to offer loans. The decline in borrowing is a risk since the recovery of the economy would require more credit for the revival of businesses (Pimlott, D. 2010).
The intervention of government through the injection of rescue funds has enabled banks to rebuild their capital and insure from further bad debts. The government has served guidelines to increase the accessibility of banks to liquid assets that is equivalent to cash to face potential credit deficits and to reduce the risks while dealing with shareholder’s money. But the cost of increasing liquidity and capital is not mentioned by the government while it urges banks to increase lending. The injection of rescue funds is a temporary ease for bank to recapitalize. The extent of lending is still facing trouble because major funds were sourced from international money market which now continues to be largely closed. The current option for banks is to use saver’s deposit for lending. Therefore if Barclay’s bank lends more funds, the Royal Bank of Scotland has to cut back if it does not get additional funds from the taxpayer. Inherently, lending to wealthy home owners or blue chip companies is a risky business for banks because it requires lots of funds and additional liquidity (Inman, P 2009).
The government’s decision to rescue the banks that suffered huge losses in the market received mixed response. The slide of RBS by 40 percent in the market showed signs of serious danger. Banking stocks suffered huge losses while it was already paralysed with the credit crunch. RBS had a deficit of about £30 billion which was run on by enterprises that had huge ...Download file to see next pagesRead More
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