Banking Regulation: A Delicate Balancing act between Safeguarding the Economy and Encouragement of Creativity in the Banking Sector

Abolarin, John Adebayo (2022) Banking Regulation: A Delicate Balancing act between Safeguarding the Economy and Encouragement of Creativity in the Banking Sector. Doctoral thesis (PhD), Manchester Metropolitan University.

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Abstract

Although it has been well over ten years since some of the most advanced global economies witnessed an unprecedented financial catastrophe which some banks are still recuperating from their losses, since then a lot has been written about the crisis by academics and more are still going to be written in an effort to see to it that crises on that scale and with such devastating effects are reduced to the barest minimum if not eliminated altogether. The study evaluated the desirability or otherwise of the ring-fencing policy as a suitable regulatory measure in response to the global financial crisis (GFC) particularly in the circumstances of the Global Systemically Important Banks (GSI-Bs) in the UK. Through evaluation of the financial accounts of the case studies from 2004 to 2018, the study aimed to determine the varied long-term impacts of the GFC on the performance of four of the largest UK banks chosen as case studies, the Royal Bank of Scotland, Barclays Bank, Standard Chartered Bank and HSBC Plc. Lest we forget too quickly, the study lays out some of the direct consequences and costs of the downward journey of these banks since 2004 – 2018 and the difficult road back to recovery as a lesson on record for the future. The question is concerned with whether structurally separating ring-fenced banks from their roots and with it, moving away cheap core deposits’ funds from the non-ring-fenced banks is serving the best interest of the banking sector and by extension the UK economy or that there are better ways of keeping a rein on the bankers without unduly hurting the financial intermediation capabilities of the GSI-Bs in the UK. A longitudinal multiple case studies strategy was adopted engaging both qualitative and quantitative methodologies in the data analysis. The study suggests that a better approach could have been to use legislative powers to stop the banks from engaging in risky speculative investment trading while on application, licences could be given to qualified banks that are interested in incorporating a separate entity that could engage in speculative proprietary trading should they wish to do so. In effect, it is the risky investment elements that should be taken off the mainstream banks not the core deposit accounts. That way, core depositors’ accounts would be protected in the same way that the ring-fencing policy would do. The added advantages are that the cheap core deposits would then be available for the traditional corporate lending where huge multinational corporate customers’ financial needs could be catered for. Also, the UK universal banks would have been able to retain their competitiveness in relationship with the other European counterparts that did not adopt the ring-fencing policy.