BUSINESS ECONOMICS

Business economics



Business economics

Introduction

The world has suffered from the economic downturn or global recession, which has affected, the economy throughout the world. There are various countries, which have suffered, from recession and they are struggling to meet it. It can be overcome by developing various strategies, which can be, used to overcome recession. The UK economy suffered from recession after gross domestic product (GDP) registered a fall of 1.5% in the last quarter of 2008 it was considered as the second consecutive decline (West, 2009, pp. 100). This figure was worst in more than 28 years, according to data released today by the Central Bureau of Statistics.

Deregulated banking industry and economic downturn

It is true that UK over reliance on banking is the key factor in an economic downturn or recession. The experience of different countries also shows that banking crises reflect the complex process of adaptation of banking systems to the new macroeconomic conditions. The liberalization of foreign economic relations and the deregulation of the banking sector in both developed and developing countries, globalization of financial services, market reforms in transition countries. These processes have evolved quite painful, increasing the early stages of macroeconomic instability and economic imbalances and negative effect on the state of bank balance sheets. Against the backdrop, of increased volatility the banking system proved to be highly susceptible to such traditional factors of banking crises, as economic recession, turmoil in the real economy (Winkler, 1969, pp. 1073).

Decline in solvency in banking

The decline in production, the deterioration of the solvency of banks borrowing enterprises are the traditional cause of banking crises. The degree of impact of the crisis in the economy on the banking system depends on many factors. However, it is important to identify the fundamental cause - the condition of the banking system by the beginning of the economic crisis. It is, above all, the liquidity position of banks about how their commitments covered with their own capital, what is the quality of their loan portfolio. The flip side of credit expansion is the deterioration of credit quality, overvaluation collateral for loans, increasing credit risk. Simultaneously, rapid credit growth is difficult to monitor regulatory credit quality of banks as a result of its rapid change (Hamilton, 1989, pp. 357).

Fluctuations of prices

The sharp fluctuations in commodity prices, financial asset prices, and interest rates significantly increase the overall uncertainty in the economy and risk in the system of relations between banks and their prime contractors - depositors, borrowers and regulators. It becomes more difficult to assess by banks, credit and market risks, and investors and regulators to check the consistency of banks (Sargent, 1977, pp. 45). Small European countries are facing serious difficulties in carrying out the strict monetary policy. In particular, the liberalization of credit markets led to a boom in the 80s, when speculative lending inflated prices m the financial markets led to a serious banking crisis.

Inflation

It affects the banking sector through several channels - through interest rates, weakening incentives for saving and narrowing ...