[Analyzing UK Tripartite System In The Light Of The Financial Crisis In 2008]

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ACKNOWLEDGEMENT

I would take this opportunity to thank my research supervisor, family and friends for their support and guidance without which this research would not have been possible

DECLARATION

I, [type your full first names and surname here], declare that the contents of this dissertation/thesis represent my own unaided work, and that the dissertation/thesis has not previously been submitted for academic examination towards any qualification. Furthermore, it represents my own opinions and not necessarily those of the University

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ABSTRACT

The global financial crisis of 2007-08 produced a sudden change in the economic policy of the United Kingdom (UK). Prior to the crisis, the government preached the gospel of price stability, fiscal prudence and light-touch financial regulation. In the wake of the crisis, the government countenanced unconventional monetary policies, a surge in public-sector borrowing and the need for a rethink of financial supervision. This research seeks to understand the significance of these changes using Peter Hall's theory of policy paradigms. Its central argument is that, contrary to appearances, the UK has not yet experienced a fundamental reordering of the instruments, institutions and aims of economic policy. Third-order change cannot be ruled out as the crisis unfolds but the economic ideas underpinning UK economic policy have, for better or worse, demonstrated remarkable resilience thus far. The purpose of this paper is to outline the principal responses adopted within the United Kingdom to the recent financial crises beginning with the contraction in liquidity on inter-bank markets in August 2007. The objective is to identify the key components within the emerging U.K. response, as well as residual gaps and omissions which study may be of interest and use to policy reformers, legislators, practitioners, and other interested parties in other parts of the world.

TABLE OF CONTENTS

ABSTRACTiv

CHAPTER 1: INTRODUCTION1

Introduction to Research Topic1

Research Question2

Research Aim and Objectives3

Literature Review4

Background to the credit crunch11

Deposit insurance14

Bank insolvency regimes15

Money market operations19

Markets And Crisis23

Justification of Methodology24

Limitations of Methodology25

Organization of Work26

Chapter Outline26

CHAPTER 2: TRIPARTITE SYSTEM27

Tripartite System27

Political And Parliamentary Response27

Turner Review-March 200928

Regulatory Response29

Systemic Regulation30

Capital And Accounting31

Liquidity31

Pro-Cyclicality32

Gross Leverage Ratio33

Wider Issues34

Treasury White Paper on Reforming Fianancial Markets-July 200934

Chapter Outline35

CHAPTER 3: ROLE OF PRUDENTIAL REGULATION AUTHORITY37

New Regulatory Bodies39

Bank Resolution and the Banking Act 200941

Financial Stability Objective43

Financial Services Act44

Financial Stability46

Policy in a world of non-stationary shocks48

How good are our macro models?50

What are the shocks?54

What are the possible monetary policy responses?55

CHAPTER 4: THE PARADIGM UNDER PRESSURE56

Prospects for the Policy Paradigm61

Shift From One Paradigm To Another62

Lack Of New Instruments64

Political Support65

CHAPTER 5: CONCLUSION AND IMPLICATIONS66

Actions taken by the FSA70

Actions taken by HM Treasury71

BIBLIOGRAPHY75

CHAPTER 1: INTRODUCTION

Introduction to Research Topic

This paper seeks to analyse reasons behind the difficulties faced by Northern Rock (NR) and the UK financial system and proposes a return to a more traditional/prudent banking business model, based on a sound balance between sources and uses of funds.

The UK has been among the European economies hardest hit by the global financial crisis. The worldwide financial turmoil that began in 2007 triggered the first run on a British bank since 1866 and ...