BACKGROUND. The rising defaults on subprime mortgages in the
ANALYSIS. Bank crisis management at the national level comprises an array of different responses. As a result of the great complexity of inter-linkages both within and across financial systems, policy makers had to take into account that it is not possible to reform one part of the structure without considering the others.
When confronted with failed or failing banks, public authorities have at their disposal:
- Central bank intervention through monetary operations (interest rate operation, liquidity operation, security lending)
- Regulatory tightening to enhance the transparency of the financial system;
- Government guarantees for depositors and banks including asset guarantees and bail out schemes;
- Fiscal expansion to stimulate to economic growth through increasing demand;
The recent turmoil has exposed the financial system of the
Institutions. The financial stability of the
A framework for co-operation between these institutions has been signed in 1997. The tripartite framework sets out the role of each authority, and explains how they work together towards the common objective of financial stability in the
TREASURY. The Treasury, the
The Treasury has no operational responsibility for the activities of the FSA and the Bank and shall not be involved in them. But since it is responsible for formulating and implementing the UK Government's financial and economic policy, it has been co-operating with the two other authorities in the crisis management. The Treasury provides the link between the authorities and wider government.
The Treasury has an initial role in
Government’s measures to address the recent crisis:
- Government-supported re-capitalisation scheme for
- Government guarantee for institutions taking part in re-capitalisation scheme for their unsecured debt instruments for terms up to three years
BANK OF
The involvement of the Bank in crisis resolution is necessary because of
- its continuing lender of last resort function,
- its responsibility for maintaining overall financial and monetary stability, and
- its operation to provide emergency financial assistance to individual firms or to the market as a whole
Measures of the Bank of England to address the recent crisis:
- Setting up facilities to buy private-sector assets (corporate bonds, commercial papers)
- Special Liquidity Scheme for providing the banking system the amount of liquidity they need to fulfil their liquidity deficit (GBP 200 Bn October 2008, GBP 185 Bn in February 2009)
- Interest rate operations (the interest rate in the
FINANCIAL SERVICE AUTHORITY. The Financial Services Authority (FSA) is an independent non-governmental body. The FSA regulates the financial services industry under four objectives: maintaining market confidence; promoting public understanding of the financial system; the protection of consumers; and fighting financial crime.
The FSA's has an important role in crisis management as it is responsible for
FSA’s package of measures designed to recent crisis resolution:
- tighten regulation for the amount of capital to weigh against the risks their trading desks take
- requirement of a fundamental review of the division between the trading and banking books and of the appropriate use of VAR to measure risk
- temporary ban on short-selling
CONCLUSION. As a response, the British government introduced comprehensive plan in relation to the present financial crisis. The resolution plan includes a wide range of emergency measures involving different regulatory and operational authorities and institutions. Co-operation between Treasury, Bank of England and FSA is achieved by the distribution of different tasks. However, the recent turmoil has such a great impact on the British economy, that even the co-operation of authorities will not itself save the economy from recession. But with an aligned intervention, the paralysis in the banking system and a long-term depression could be avoided.
