Tag: banking

The global recession can be traced back to the collapse of the sub-prime mortgage market in America and so it’s hardly surprising that one of the biggest sufferers of this global crisis has been the housing market. House prices in the UK had, for some months, been in apparent free-fall, but they now appear to have stabilised. Some estate agents report prices beginning to increase, but others say they’re still falling.

Whilst lower prices should be an encouraging sign for first-time-buyers, there is another obstacle in their way. Mortgage lenders have been requiring large deposits and, unsurprisingly, have become more vigilant about whom they lend to and how much. Read the articles below that look at the crisis in the housing market and consider the impact this has had on the wider economy.

Experts far more upbeat about UK house market The Herald, Ian McConnell (26/6/09)
Gloomy CIPS data shows further woes for construction firms Construction News, Nick Whitten (2/10/08)
Construction contracts at slowest pace for seven months Construction News, Nick Whitten (5/5/09)
House prices decline again in May BBC News (26/6/09)
Mortgage lending falls back again BBC News (18/6/09)
More fixed-rate mortgages go up BBC News (16/6/09)
Housing market needs ‘feel-good factor’ to recover CityWire, Nicholas Paler (26/6/09)
Housing market set for recovery Exec Digital, Ben Lobel (26/6/09)
Home-ownership ‘aspirations hit’ BBC News (15/6/09)
House prices fall 1.7 percent in April Exec Digital (6/5/09)
Spring bounce in mortgage lending BBC News (11/6/09)
Is the first rung on the property ladder broken? BBC News, Kevin Peachey (27/4/09)
Lack of affordability may slow housing sector recovery RLA News Service (25/6/09)

See the following two sites for house price data in the UK:
Halifax House Price data from the Lloyds Banking Group
Nationwide House Price data

Questions

  1. Why has the collapse of the housing market had much wider repercussions on the UK economy? Consider the impact on construction, solicitors, surveyors.
  2. Have any groups benefited from falling house prices?
  3. How has the UK’s monetary policy in particular helped to stimulate the UK housing market? Has it been successful?
  4. Why are lenders so reluctant to lend? Is this a direct result of the sub-prime crisis in America?
  5. What is the meaning of ‘negative equity’? How does being in a situation of negative equity affect people’s behaviour?

Banks appearing in the news has become commonplace in the past year or so. Everyday, there has been something newsworthy happening in the banking sector, whether in the UK or abroad. A recent development in this sector is Barclays agreeing to sell its fund management division, BGI, to Blackrock for £8.2 billion. Barclays says that there are strategic reasons for the sale, which undoubtedly add to the 8.2 billion other reasons. This deal will put the bank in a strong position to make acquisitions next year in creating the world’s biggest asset manager. It will also allow Barclays to weather any further storms on the horizon. The articles below look at recent developments.

Blackrock in £8.2 billion Barclays deal BBC News (12/6/09)
Blackrock and a hardplace The Economist (12/6/09)
Bob Diamond: The builder of Barclays Telegraph, Louise Armitstead (13/6/09)
Barclays offloads fund management business BGI to Blackrock for £13.5 billion Telegraph, James Quinn (12/6/09)
Inside Look: Blackrock buys Barclays fund unit for $13.5 billion Bloomberg, youtube (12/6/09)
Sovereign wealth funds back BlackRock move to acquire Barclaysd Global Investors Telegraph, Louise Armitstead, James Quinn (12/6/09)
Blackrock targets Barclays firm BBC News (8/6/09)

Questions

  1. What are the ‘strategic reasons’ behind Barclays’ decision to sell its fund management division?
  2. The Blackrock and a hardplace article talks about the benefits of economies of scale. What does it mean by this?
  3. What are the advantages and disadvantages of combining fund management with banking and creating such a large business?
  4. Given that Barclays’ fund management, BGI is a successful part of its business, does their agreement to sell it put them in a stronger position?
  5. What will be the likely impact of this deal on the economy? Consider who will be (a) the winners and (b) the losers.

Nationalisation has been coming back into fashion lately with the UK bank bail-outs. In other parts of the world though, it has been back in fashion for longer and the articles below look at two recent cases in Latin America: the nationalisation of the Chaco energy company and the renationalisation of Spanish-owned airline, Aerolineas Argentinas (AA).

Bolivia nationalises energy firm BBC News Online (24/1/09)
Argentina renationalises airline BBC News Online (18/12/08)

Questions

  1. Explain what is meant by nationalisation.
  2. Discuss the arguments for and against nationalising (a) an airline and (b) an energy firm.
  3. Assess why nationalisation has become more prominent in the media recently than privatisation.
  4. Discuss the arguments for and against privatisation.

Commentators and policy makers are casting far and wide to try to find policies that may offer solutions to the banking crisis and the financial situation it has caused. One proposal (considered in two articles below) is the introduction of a Tobin tax. A Tobin tax is a levy on currency transactions and the argument is that this will act as a disincentive for short-term speculation and therefore force traders in financial and currency markets to look more at medium- to long-term rather than short-term gain.

Tobin’s nice little earner Guardian (15/10/08)
Make state capitalism pay its way Guardian (26/9/08)

Questions

1. Explain what is meant by a Tobin tax.
2. Assess the arguments for and against the imposition of a Tobin tax on currency transactions.
3. Discuss whether changes to the regulatory structure of currency markets may be more effective than the introduction of a Tobin tax.

The Office of Fair Trading (OFT) is to set up an investigation into the reality of ‘free banking’ to establish whether greater transparency in charging would benefit consumers. The articles linked to below consider the scope of this investigation and look at what some consider the ‘myth’ of free banking.

OFT probe into bank charges could mean end of ‘free banking’ The Scotsman (27/4/07)
‘Free’ banking could end as overdraft charges challenged Guardian (27/4/07)
Watchdog probes cost of banking BBC News Online (27/4/07)
Charges inquiry may spell end of free banking Telegraph (28/4/07)
OFT considers ending ‘free’ banking Times Online (27/4/07)
Q&A: Banking investigation and you BBC News Online (26/4/07)
Calling banks’ bluff BBC News Online – Robert Peston blog (26/4/07)
Free banking ‘myth’ to be probed Guardian (26/4/07)

Questions

1. Explain the reason why some people consider free banking to be a ‘myth’.
2. Examine the likely impact of the market structure in the market for banking on the level of competition.
3. Assess two policies that the government could implement to ensure that consumers get a fairer deal from their banks.