Causes and Impact of the Recession on Banking Sector

Causes and Impact of the street corner on Banking SectorIntroductionGrowth Management Two Hats be Better Than OneBy Andrew Lester page 169Says there is a rendering of an frugal street corner-two succsive quartets in a year when the economy shrinks rather than grows. In the presence of stinting deferral, the executioned countries ar extremely in the take of anxious..The developed countries are trying to do everything to avoid the mend of recession in their rural, but, it is true(p), the developed countries are the first scratched of the sparing recession because of the economic slow shovel in. It bear be understand with the simple explanation by the polar principles of economic, when any country played a big contribution in international trade commercialize in variant sectors it is true that the economic feat exit be more swear on their land. Recession affects the GDP or gross domestic product of the country and the downturn in incompatible economic activities are facing the capitulation (smith, 2009).RationaleRecession is the phenomena which is non new, but it occurs from age to m. In this language we impart centralise on the economy of UK under the shade of recession. The economic changes which are being brought by the recession.Banks are the finance provider to the new(prenominal) sectors which in turn provide growth to the economy. This late 2000s recession aggravated the situation. Mortgage rate was high they cut back loans and redundant people.The enigma was clear in the late 2000s recession when the international investors and domestic holders withdrawing their deposits and the verifys were cut down the availability of loans. It was really hard for the clients to find a reasonable owe rate or owe offers.In the previous year, the external economic environment has greatly stirred UK banking and finance. Globalization linked economies so that economic shifts and changes in one economy affects the early(a) as in the f aux pas of the owe merc accomplishise in the linked States and the banking sector in the unite Kingdom. Technological innovation alike attendanted the linkage of economic sectors so that a downturn in one economy is likely to affect separate economies. This finds ex commoveion in the owe market of the joined States and its work on the banking sector in the join Kingdom. The trend in the United States is the engagement in the sub-prime owe market to meet growing prerequisite for housing. As such, many banking and finance institutions engaged in sub-prime mortgage, which in effect is approving loans for people who do not necessarily meet the credit entry rating criteria previously established. As a result, many people purchased homes on mortgage financing.As these loans matured, many were unable to pay the mortgage loans. This resulted to the sub-prime mortgage market crash in 2007. In the meantime, the United Kingdom besides experienced housing demand. This encouraged n ew firms to engage in the sub-prime market or existing banks to establish sub-prime mortgage services such as Northern stone. The sub-prime mortgage market crash in the United States impact the banking sector in the United Kingdom, particularly the banks that engaged intensively or almost exclusively on the sub-prime market.The crash in the United States signalled the enigma that is also starting to heighten in the United Kingdom because of a number of reasons. One, large banks present in the United States and involved in the mortgage market were in the process of consolidating their losses so that these banks refused or had not ability to extend short term loans to other banks, which severely relied on short-term loans from various banks for its sub-prime mortgage system to work. Another, banks in the United Kingdom also refused to extend further loans to the mortgage market or to pecuniary institutions relying on short-term loans. This led to a credit bray that eventuall y led to huge losses and bankruptcy. In this crucial time whatsoever banking institutes had effectively exercise of sufficient internal control practices to support its sustainability tar fit by balancing risks with expected returns as sanitary as some primary(prenominal) decision taken and implemented by wit of directors like to not to a great extent involve in mortgage market helps them to survive and sustain enough profit in this time.In this utterance we pass on focus on the impact of recession on some financial firms who couldnt survive and book major losses up to pie-eyed down with the example of Northern Rock, who announced bankruptcy.The Focus leave be on the Barclays that how it has bear the pressure of recession and it flourishes. We bequeath find expunge out the policy and the orderology to reflect the ruffles of recession. Dissertation leave behind also focus on strategies to be implemented and suggest some changes to be do in operation of banking paren tage to not repeat these again. Some other financial firms who survive and balance its profitability by quick important decision and implement of some strategies with the example of Barclays, top banking firm of United KingdomLiterature re captureThis dissertation entrust also discuses the financial crisis in UK and what is the economic condition at present. Christopher Dow said that Recession are best defined as short snuff its below the capacity growth rate, therefore accompained by growing unemployment. the initial defination of a large recession(that output should fall absoltly) is thus equivalent to a requirment that the rate of out put growth should fall below the norm(or capacity rate) by more than the norm itself. Five periods were set on theses criteria as major recession1920-1,1929-32,1973-5,1979-82and 1989-93.On January 24, 2009, Edmund Con charge, economicals editor for The Daily Telegraph, wrote that The plight facing Britain is uncannily similar to the 1930s, since prices of many pluss from shares to nominate prices are falling at record rates in Britain, but the nurse of the debt against which they are held re master(prenominal)s unchanged. Recession in this age of orbiculateization is not to be kept at a single place it tranfer its effect from one sector to the other and from one country to other .It will also highlight what are the main causes of Northern rock banks down fall cod to various factors which are thoroughly converseed in writings review with the help of print media, bon tons case studies/websits,books,gernerals and websites also what are the affects on consumer.It is also conclude ground realities of globose recession as well as enhanced in operateation of worth while recourse in order to understand the matter of crux of world economic globalization.The subprime mortgage crisis has already suggested living standard of people obstruct to the world in line with fare of US and global economy and now it threatens to j ump out the U.S. economy. Origin of economic crisis and how to tackle them, advice to take valuable measures to get over the economic crisis has been revealed by best selling economist Robert Shiller in his book. An high-pressure response need to be taken by people in order to restructure the intuitional basis. He also shows in his book that how these economic bubbles can be further dangerous in near coming(prenominal) .Northern Rock banks and several of its customers withdrawal their money and speechs due to there was news in the market or so bankruptcy of bank which are get from Bank of England. This was certain one the reason that the precedent consumers of Northern Rock lead placed their savings in other banks considered to save better constancy even if the interest rate more or little lower then others. However, these consumers and their experience with Northern Rock mostly affected their future financial planning and decision-making.Barclays bank was formed in 2006 w ith the forshighted want to become powerful development platform for Barclays and targeted the rapidly challenging market. The judgement was to provide the better services for retail and commercial customers in markets around the globe. In 2008 annual report the congregation chief executive washstand Verley reported that that We seduce managed Barclays carefully through this period. We drop remained solidly gainfulThe main reasons for Barclays survival in credit scranch is followed by its unending approach to make important progress towards success of goal by attracting 9 Million new customers while offering them cost saving packages.Richard Posner in his book describe the way of getting ride bestial credit crunch and the reasons of economic crisis by his in-depth search.By Marc LaBonte, Thecapitol Net, Patrick Purcell describes the Recession, Depression, Insolvency, Bankruptcy, and Federal Bailouts and to determin how resession gravel or end.By Mark Zandigive the broad accessible abbreviation for the economic crisis from 2007-2009.the perform is also give thoroughly in his book related recession and new version is update with latest events regarding fall of 2008 financial collapse.Gjerstad, S.,et al(2009) said in the article In just the agone 40 old age there were two other housing bubbles, with peaks in 1979 and 1989, but the largest one in U.S. history started in 1997, probably sparked by rising household income that began in 1992 combined with the elimination in 1997 of taxes on residential capital gains up to $500,000. Rising values in an asset market draw investor attention the early stages of the housing bubble had this usual, self-reinforcing feature.It is noted that lower mortgage rates are attracting, but somehow the financial institutions have a big shortfall. They have to suffer for it. In planetary sense the housing market is the direct centre of the crisis. The Financial contingency had started in USA and spread out to Uk and the rest of Europe.Three years ago when northern rock a mortgage bank was teetering on the brink, the financial authorities considered keeping it float with secret sine qua non modify but it was bank run(Anon 2009) . The main objection at that time came from the financial services authorities that a listed company should have to disclose the emergency bestow to avoid misleading the crinkle concern market.BBC (Aug2009) reported thatNorthern Rock relied heavily on the markets, rather than savers deposits, to fund its mortgage lending. The onset of the credit crunch has dried up its funding.Schifferes,S. (2007) in his article reported that A wave of foreclosures and evictions is about to sweep the United States in the wake of the sub-prime mortgage lending crisis.Another bank to discuss is northern Rock which collapse as a result of recession. Hyun Song Shin in the Journal of Economic Perspectives, said The U.K. bank Northern Rock became the first high-profile casualty of the glob al financial crisis of 20072008 when it suffered its depositor run in September 2007. In spite of the telecasting images of long lines of depositors outside its branch offices, the run on Northern Rock was unlike the textbook retail depositor run caused by coordination failure. Also, contrary to received wisdom, its reliance on securitization was not an immediate factor in its failure. Rather, its problems cauline from its high leverage coupled with reliance on institutional investors for short-term funding. When the de-leveraging in the credit markets began in August 2007, Northern Rock was uniquely vulnerable to the shrinking of lender balance sheets arising from the tick-up in measured risks.Aims and documentarys.The dissertation aim will be recognise secondary info of global recession effect in the UK economy as well as in primary explore meditate determining first hand development on the recent situation of global recession bear upon Uk economy, in terms of banking se ctor and mortgage sector .The first objective of the look is to find out the most adequate strategy that can be use by the institutions which in return can add their market performance..For the objective, the need to use collective research and information placing system of weights to global economic recession facts and figures in the year 2008 and present, and its impact inwardly UK economy.. interrogation QuestionsThe dissertation will aim to find answers the following research questions through the analytical techniques and the data collections.What causes an economic recession? What are the effects of an economic recession on the financial sector?Northern rock was collapsed during the recession period what was the reason behind?Barclays Plc is not affected by the recession. What are the strategies they aimed?What is the short term and long term strategies adopt by a business in the recent recession?Research methodological analysisThe main objective of this digest would be to examine the main causes of recession and the impact of recession on the financial sector with elaborate research on Barclays Plc and Northern rock Bank. This dissertation will discuss the strategies they applied to survive in recession and what are the problems they had impudenced. The dissertation will also discuss the economic condition of UK banks and housing market. It will also analyse that what are the strategies, which have been adopted by the financial sector. For the research ruleology, it is important to bring in related knowledge towards the UK recession and its impact towards the financial sector. Negatively or positively from within the case study consultations to be devoted by some UK small medium entrepreneur and multinational corporations, interviews will not be of less than hundred, these are the ones who are effected by recession regarding their loss of jobs and the status from their employment from the UK business sectors.Types of DataThe main typeface o f Data will be still for this purpose of this report is as follows.Primary DataPrimary data is the information, which is compile by the researcher from his own analysis. It could be in the form of analysis questionnaires, interviews, observations, case studies or critical incidents. The primary data, which is stash away from the different bloods, could be either qualitative which looks at the explanation behind the given responses or quantitative which is in the form of numbers and which can cook up in the form of a graph or a table. unessential DataSecondary data is the information that is already available. This could be including books, reviews, press releases, newspaper, news bulletin, or reports etc.Again secondary data collected could be either quantitative or qualitative. It depends on the source and type of the information collected.Primary DataQuestionnairesA research question is a kind of survey where the information is collected with the intension of arriving at the different conclusions on an essence. This kind of survey will help the researcher to get impartial result and if required the researcher can predict an issue or advice changes.Questions will be divided to the employees, managers of big financial companies of selected banks, mortgage companies and the housing sector. The question will be targeting a most precise issue of the discussion and each response would be analysing against each other. fall out may be deals with a variety of media (paper-electronic-verbal). Different kind of method can be used internet, face to face, telephone and mails.. The people will be divided in managers employees and customers.InterviewsInterviews will be held on the spotting with the people of different sectors. It could be on phone or face to face either when the respondent meets the interviewee over the phone or like a shot and answer some circumstantial questions relating to circumstantial issue. This kind of interviews is more plus since no t only respondent can convey himself or herself and interview can ask to elucidate the answer.Secondary DataSampling methodStratified takeStratified sampling is a method where the population is based on congregations. For the dissertation purpose, we will divide the populations.Managers of the companiesThis will include managers who are in direct contact with financial departments, including policy and decisions makers.EmployersThis group directs to those who help to apply the strategies or changes. Their opinion is indispensible as they are indirectly related with the running of businessCustomersThis group directs to those who are directly and indirectly affects with new changes and strategies.The big advantage of stratified sampling is that question will be related to the details. The interviewer wants to be answered and there will be less circumstances that the respondent will simply guess an answer because they have already been chosen whether they are in a position to answe r the question. in that respect is another advantage of this type of sampling method is that it increases the chance of having a more relevant answers as compared to simple random sampling. It is contingent that the disadvantage is that it makes the analysis a bit complex.Simple random samplingThis is a method where a small group of samples are selected from a large group of people. the advantage of this method is simplest and straightforward and disadvantage is time scale may be too long.Data analysisThere are two major approaches to analysis the data and collect an information qualitative and quantitative research method. Sometime required information is already available and required only be pull out. However, in the analysis sometime information must be collected. This kind of research will call back the second approach. The research needs to be collected and it is not already available. The research mainly relies on the primary data. The nature of the problem which researche r will explore in this report is suitable for both research methods. The secondary data in this research will be gathered from reports, books journals, internet journals-internet websites, companys website, articles and every other written source of data.As primary data will be collected through the interviews and questions, then all of the collected data will be analysis to accomplish the objectives and aims of the dissertation. soft Research TechniqueQualitative research actor to know why, not the, how, which is collected by many methods like interviews, feedback, forms-emails. Qualitative research is used to understand how people feel and they think-depth interviews or group discussions are two common methods to use for collect qualitative information. numerical Research TechniqueQuantitative research technique where a research method depends less on interviews, questions, observations but it is more focused on the numerical data and statistic collection and analysis. Informatio n collected from the financial sectors, banks, mortgage companies will be combined together and put into tables and graphical charts to view the opinion on different topics and to review overall responses.Limitations of the Study rigour and reliabilityValidity directs to the truthfulness and accuracy of the research. Research data may be mislead if a question will be misinterpreted or misunderstand. Reliability is a various statistical tests. There is another way to test the reliability is to ask a same question with different wording in the research survey. It will help to collect a right data. Data may be misleading if the interviewee gives a astuteness instead of straight facts. Therefore respondent will be retract in many ways from freely expression views with the help of close ended questions.InterviewingIt may be challenging to finding the right somebody at the right time because of the current economic situation. A financial sector would face the different challenges and th en an interview for an academic research could end up with a long way wait.ConfidentialityAs the business market is very competitive and the fact is that bit information about the company can give a rise to the competitors, a company energy not want to share data. Although a confidentiality, agreement will be signed and disclaimer will be issued.Response multiplicationThe response time to the questionnaire and interview setting mostly rely on how busy the management and staff are at the research time. This might make collection process lengthierRecent external factors Economical changes have a direct impact on the financial sectors and therefore theses changes have impact on their staffs as well. It is possible that feed back could be more a response to the recent external changes and not because of the business to ensure employees are happy and content.Time Scale PlanningActivitieswhitethorn05-30May-June30-22June-July25-02July04-14July16-26July-Aug27-07Aug-Sep08-25Sep26-30Project proposal___Literature Review____Research Methodology____Empirical study____Empirical result____Recommendation____Conclusion____ thesis submission____