UK Government Policies Essay Example | Topics and Well Written Essays - 1500 words

UK Government Policies - Essay Example The reasons for the banking crisis were many including low real interest rates, too much liquidity and a misjudged faith in the financial system. These three factors created an entourage that was extremely optimistic and full of opposite opinions. By not understanding the sensitive situation, some banks have only themselves to blame (Singh, 2007). The tradition within the banking sector in the UK has been one of the risks taking type that lead to its ultimate failure. Bankers made a mess of the financial reading and hence the financial situation (Singh, 2007). However, this failure was not just restricted to individual banks but also the system constructed to defend the public from risk. Banks got concerned about the value of their mortgage and also about the mortgages they had purchased from other institutes. For this reason they refused to lend to other banks in the money markets (Singh, 2007) The measures that the governments stuck during the financial crisis were public investments like debt and equity which further resulted in acquiring banks and other institutions. Government investments eased the situation of banks that went bankrupt and failed to meet its obligations. It increased the amount of money or capital they had and able to make them go on with their daily business routine. The banks that did not keep up to their reputations were legally intervened by the government as it is a part of legal procedure. This intervention means taking away the license from the banks if they were under performing to the level that they had huge debts. This practice however is very common in the USA and some examples include the closing of Washington the sale to JPMorgan (Giudice, 2012). In some cases a few banks could not be sold and so the government decided to take over them by nationalization. For example in the UK the government nationalized many banks and took over some by b uying through common stock. Common stock gave them the right to owner ship of some of the largest banks in the UK like Royal Bank of Scotland and Lloyds (Giudice, 2012). To recover from this financial crisis, the government of the United Kingdom came out with different schemes. One of the schemes was known as the recapitalization program. Under this scheme the government agreed to finance the largest banks in the UK by injecting ?50 billion worth of investment. A company called the UK Financials Investment Limited (UFIL) was created to manage investments in these large banks and to check if they were providing lending with reasonable rates of interest to the general public (Lybeck, 2011). The recapitalization program required an approval from Her Majesty’s treasury for banks to attain it. Eight banks and building societies subscribed to the program including RBS and Lloyds who were granted funds worth ?20 billion and ?17 billion respectively. The government also put some dema nds forward. It said that the banks, after receiving funds should try to help people with their mortgage payments so that they could stay in their homes. The government also kept the right to appoint new non-executive directors. The government recapitalized RBS and Lloyds and taking over 70% and 65% respectively. It took complete control over Northern Rock and Bradford & Bingley. The reason