The Response of the UK Government and The Regulatory Authorities to the Recession
Jeremy Paxman philosophically asked a question on 1st July BBC’s Newsnight –
That is the question from bonus fueled city traders, bankers, the local corner shop owner as well as the all of the taxpayers in this country.
Although there was an amid speculation from the economists and analysts that the 2008 recession going to hit hard to UK economy and perhaps UK GDP set to fall more than 1990’s recession. But UK government took extra few months to acknowledge the presence of the recession in the country.
However, the UK government and regularity authorities acted swiftly to resuscitate the economy. Government increased spending to revamp the money circulation. On the other hand, the FSA and the Bank of England have been drafting a strategy to tame the wild horse natured super size banks.
After the 1990’s dotcom bust, the city became extremely desirous towards the bonus culture than ever. The treasury was controlling the bankers by using their “eyebrow controlling method” before the FSA era, there was no written rule of how to run a bank. But after the birth of FSA, the eyebrow controlling evaporated and FSA handbook become the control margin. Everyone is happy as long as you follow the banking rule bible produced by the FSA.
Now the 64 million dollar question, are the UK government and the financial regularity authorities doing enough to take us out from these crises?
At the beginning of the recession volatility controlled the trading Market. FSA banned short selling for a short period, hoping the recession would end soon. Many people believed short selling was the main reason for the sharp falls of HBO’s share before Lloyds TSB rescued it.
UK government cut the VAT to make public to spend money instead of saving it, but is it good enough help the SMEs?
Bank of England slashed the interest rates to all time low, asked all of the high street banks to pass it on to the consumers, but still there is no definite sign of recovering from this crisis.
Mervyn King – Bank of England governor- declared that big banks with complex structure should be divided in two divisions. One will be operating by taking risk with little capital, the other would be dealing on the high street in good old fashion- ordinary banking. Banks have to have a healthy capital as a back up to allow the banks to absorb the losses should any arises in the future.
The size of the banks and the capital are a vital factor to allow them to fail. Already this “suggestion” been criticised by some analysts. They argued that the problem is not with the banks’ operational structure, it is something else.
However, so far today the UK government and the regularity authorities significantly strengthen regulation supervision and governance to ensure the risk of failure is reduced from future crisis.