1.2 Trends in the Financial Sector Flashcards
Why was UK Financial Investments set up?
To manage the Governments shareholdings in the banks that they rescued during the financial crisis
Who is the only shareholder of UKFI?
HM Treasury
What is the action described as when Northern Rock was bought by the Goverment?
Being taken into public ownership
How was Northern Rock split when it failed?
Into a ‘good’ banks and a ‘bad’ bank
What did the Northern Rock ‘good’ bank comprise of?
The pre-existing savings accounts and the pre-existing mortgage accounts that the bank expected to continue to receive payments from
What did the Northern Rock ‘bad’ bank comprise of?
The mortgage accounts on which customers had arrears or on which they had defaulted
Oligopoly definition
When a market is dominated by a few firms
Why do takeovers/mergers occur?
- Increase market share
- Drive out competition
- Diversify their product portfolio
What is divestment?
Getting rid of stocks, bonds or investment funds - the opposite of investment
LBG & RBS divestment example
They have been required by the EU to sell some branches and assets in return for being rescued by the public sector
What is a ring-fenced body?
One that carries out core activities
What is the only activity defined as core?
The accepting of deposits - ie the opening of accounts, and the provision of withdrawal, payment and overdraft services
What services do non-ring-fenced parts of the bank provide?
The full range of services
What is the idea behind ring-fencing?
That in the event of the insolvency of part of the bank, the ring-fenced body will still be able to continue to provide its core activities
Advantages of ring-fencing:
- Bank can always provide core activities
- Depositors’ money will not be used to pay the debts of the riskier-investment section of the bank
