The UK Banking System Essay Example | Topics and Well Written Essays - 1750 words

The UK Banking System - Essay ExampleMany of these do not have a physical bearing in the UK but can accept deposits on a cross-border basis. Assets and liabilities of the UK banking field reached 4,165bn at the end of 2003, nearly three times the 1993 total. Although their share decreased somewhat during the past decade, foreign banks still held over half of UK banking sector assets in 2003. European banks accounted for nearly a half of this, followed by US and Japanese banks (Delta bespeak Network, 2005).Bank of England is responsible for maintaining overall stability of the financial system as a whole. Since its responsibilities for supervising individual banks were transferred to the FSA, the financial stability role of the Bank has been to instruction on identifying and limiting systemic financial risk. This involves close monitoring of the financial system infrastructure, particularly payments systems. The Bank also monitors economic and financial market developments, as par t of an overview of the system as a whole.Now-a-days, the main focus of most of the banks is on risk management primarily on reputational, regulatory, operational and strategic risk, as surface as the more traditional credit and market dimensions of risk. There are a number of factors responsible for this increased focus. The major of them are globalization, the relatively favourable economic environment - such that the UK banking sector has made record profits again this year, it remains highly capitalised and asset quality remains quick the reputational impact that high profile regulatory issues are seen to have had - on both the retail and wholesale side - and the shift in the regulators focus towards brass instrument and control issues and the unprecedented volume of regulatory change (Hale, 2004).Both the UK and world economy are continuously gaining advantage from a sustained period of invariable growth. The banks have benefited from the economic health, producing a stron g financial performance over the last few years and in the first half of 2004. They remain well -capitalized and there are no signs of any serious deterioration in asset quality. Yet, the risk of macroeconomic outlook continues to exist.The move to slightly higher evoke rates is the first aspect to be considered. To state the obvious, higher interest rates will increase the cost and reduce the affordability of both the stock of consumer bestow and new loans. Although the monetary authorities both in the UK and abroad are managing the turn in the interest rate cycle with great care, regulators are needed to acknowledge the risk that the shift to a more moderate rate of growth in consumer borrowing may not be universally silver (Hale, 2004). Secondly, the decline in lending margins. A long period of strong personal sector credit quality, coupled with strong competition for lending business, has helped sting margins to historically low levels. The effects of this on the bottom lin e have been disguised by strong volume growth. There are two downside risks for the banking sector in the UK as felt by the FSA. The first is that, the period of strong volume growth may be coming to an end. The second is that a downswing could expose banks as having under- priced risk through the cycle.The Northern Rock CrisisNorthern Rock is