Analyzing UK Tripartite System in the light of the Financial Crisis in 2008

by

Table of Contents

Chapter 1: Introduction3

Background3

Significance of the Study4

Objectives of the Study5

Chapter 2: Litrerature Review7

Tripartite System7

The Scale Of The Crisis8

Financial Policy Committee9

Role of Prudential Regulation Authority9

New Regulatory Bodies12

Financial Crisis and the market14

Chapter 3: Research Methodology16

Research Approach16

Data Collection16

Search Strategy17

Anicipated Results17

Bibliography18

Chapter 1: Introduction

Background

This Report offers a comprehensive and detailed plan for regulatory reform in light of the global financial crisis. Some attribute the present crisis to a dearth of regulation. But that is simplistic at best, entirely inaccurate at worst. The truth is that the financial crisis is the result of—not so much a lack of regulation as—the lack of effective regulation. Indeed, those portions of the financial system hit the hardest by the crisis—such as traditional banks and thrifts—have historically been the most heavily regulated. We think that while more regulation is certainly needed in some areas, our overriding goal must be to make the present regulatory regime far more effective than it has been.

In late 2008, the global economy abruptly fell into a severe downturn. All the major developed economies entered recession, with the International Monetary Fund (IMF) estimating that world GDP fell at an annualized rate of around 6% in the fourth quarter of 2008. Although a downturn had been anticipated, its severity was much greater than had previously been expected: in October 2008 the IMF expected world GDP to grow by 3% in 2009, but by its April 2009 Report it forecast a decline of 1.3%. The severe contraction of output was associated with sharp rises in unemployment. In the UK, unemployment increased almost twice as quickly as its previous peak growth rate. Also in the United Kingdom, unemployment rose at its fastest rate since 1981, putting pressure on banks' household-loan portfolios. As Sir Andrew Large, former Deputy Governor of the Bank of England, wrote in the Financial Times on 5 January, 2009: “the systemic [scrutiny] role has been underemphasised in recent years.” The Bank of England's surveillance and analytical capability now needs to be enhanced in support of its statutory financial stability objective. In response to the intensification of the global financial crisis towards the end of 2008, and a sharp downturn in domestic economic prospects, the Bank of England?s Monetary Policy Committee (MPC) loosened monetary policy using both conventional and non-conventional means. This requires the Bank to be explicitly and continuously engaged with developments in the financial markets - and not just in the banking markets. In 2004 the Bank dropped its third core purpose, relating to the efficiency and effectiveness of the financial system. The Bank had previously regarded this as an important underpinning for its two main objectives of maintaining monetary and financial stability, although it was sometimes characterised, erroneously or at least anachronistically, as conducting a lobbying role in Whitehall on behalf of the City.

Significance of the Study

Much more debate is required on these issues and questions that need to be asked include whether regulatory lines or competition and clear information to ...