UK Banks
The UK economy was one of the major victims of the recent global economic downturn. This is in no small measure to blame on the country's significantly sized banking sector, where giants like HSBC and Barclays were generally assumed to be "too big to fail." Today, after being the subject of both economic and political scrutiny, the very same reasons are being used to claim that these giants are "too big to save." Both concepts have enjoyed significant critical attention since the economic downturn. Although little has been offered by way of a cure for the failures of the current UK banking system, the general consensus appears to be that something needs to change if future economic disaster is to be averted.
According to Preston (2010), there can be little argument about the phrase "too big" when applied to the UK banking giants. When comparing the market share of British banks with those in other developed economies like the Germany and the United States, the author provides solid support for this statement. In the UK, the top six banks control 88% of all deposits, compared to 68% for Germany's top seven and 35% for the United States' top eight. This means that the banking sector controls a major part of the UK economy. Figg (2011) makes an even more staggering point: the collective loans and investments held by the three banks Barclays, HSBC and Royal Bank of Scotland amount to £1.5 trillion, which exceeds the whole of the British economy.
In this light, the concept of "too big to fail" concerns the relative size of banks to the British economy. Should banks fail, this would have major repercussions for both the individual finances of clients and businesses, as well as the collective economy of the country. Hence, when banks are in danger, the government's first priority is to bail them out with government funding in order to maintain the country's economic health.
According to Preston (2010), the historic result of this has been that banks tended to take business risks to generate profits and bonuses, which it would not have done without the certainty of bailout should...
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