IMPACT OF RECESSION Impact of Recession

Abstract

The purpose of this study was to study the Impact of recession on the liquidity structure in the banking industry in United Kingdom. The study involved the data of Barclay bank and Lloyds bank in terms of ROA and ROE. The study examined 10 years data to check the impact of recession on banking sector. Moreover, in this study regression analysis is employed to statically prove the impact. Finally, the study found that there is negative impact of recession on the banking industry

Impact of Recession

Introduction

The international financial crisis is hitting hard, not only the coffers of the major banks around the world but also makes itself felt in the local financial entities. Rate hike, drop tanks and brake to credit the great consequences that affected the profitability of banks in Argentina, in addition to its share price, the banks were the worst roles in the stock market performance during 2007 and prognosis is guarded by 2008. The turbulence that occurred in global financial markets originated almost automatic financial constraints limited the flow of capital into Latin America. This had been reborn again fear the advent of a banking crisis in each country in the region due to a contagion effect, where Paraguay would be no exception. However, for a financial crisis occurs should merge two equally important elements, the initial shock and the banking system's vulnerability to the adverse event are developed with full force. In this regard, according to recent studies, the conclusion of the IMF is that, in general terms, the financial systems of United Kingdom is better prepared and more resilient than in the past because it substantially reduced the exposure exchange risk or dependence on external financing, and accumulated large reserves of capital.

Therefore, in this brief note discusses the initial conditions in which UK banking system was caught by the global crisis, the immediate effects were noted in the main variables of the sector and economic policy reactions that occurred to counter the risk of a credit or a lack of liquidity. Because of the crisis, the level of profitability of British banks has been reduced from considerably from an ROA (ROE) 1.11% (21.43%) in 2007 to 0.71% (10.58%) in 2010. Disaggregated data entities shown in present significant differences, in the levels of profitability achieved in both terms of ROA and ROE. In this paper, we are interest to study the impact of recession on the banking sector of United Kingdom in terms of RAO and ROE. For this purpose, we have chosen Barclay Bank and Lloyds bank of United Kingdom.

Definition of terms

Return on Asset (ROA)

ROA (Return on Assets) is the percentage which shows the company's assets profitability in generating revenue, but, it is considered as more volatile. Tax shield gives leverage to the bank and hence increasing the profitability. Tax policies consider the cost and benefits which alternatively increases the firm's profitability. Also, bank's organizational form is associated with tax matters. Return on Assets (ROA) is the most widely ...