Financial Crisis in the UK

Finance and Policy

The major financial institutions affected by the financial crisis in the UK were the Royal Bank of Scotland and the Lloyds Banking group which had to be allocated large government assistance Banks such as Northern Rock Bank were nationalized and sold. The UK government moved in to try and recapitalize banks to gain some financial stability by giving out $743 billion to its financial institutions in a bailout. This did not entirely salvage the situation for UK firms as credit conditions were still stringent. After 2010, the main policy maker; The Labour Government, and the subsequent governments enacted plans that sought to expand financing options for UK firms to address the situation (Aikins, 2009).

The first plan that the government did was to implement a plan that guaranteed bank loans given to firms in figures of up to £20 billion in 2009. Later in 2011, the subsequent government started a program dubbed “Project Merlin” agreement. Apart from the introduction of new regulations on banks’ wages and bonuses, it integrated committals by banking institutions to lend over £190 billion to UK firms including awarding V76 billion to small and medium enterprises. Under “Project Merlin”, over £210 billion in gross loaning was carried out in the same year over £70 billion going to SMEs. Nonetheless, when the loan repayment is considered, the net loaning is reduced by a little over £9 billion (Upton, 2016).

With the government’s assistance, the Bank of England launched another program in 2012 dubbed “Funding for Lending Scheme” which surpassed “Project Merlin”. This new program gave loans to banking and other financial institutions as long as the loans would be used to support the high and affordable lending to firms and households. The project aimed at facilitating the stimulation of economic activities amongst UK firms by expanding their financial choices. Although the scheme saw a slow start in 2012, the subsequent years have seen growth in the scheme making the government expand the span of the project until 2018. As 2015 ended, over £69 billion had been awarded for lending purposes. As of 2014, the project had refocused to only loaning to firms giving incentives aimed at boosting lending-skewed towards small and medium enterprises (Upton, 2016). One major financial choice that was offered to UK firms was the allowance of access to capital markets and bonds for UK firms thereby replacing banks as the sole source of funding (Judge & Korzhenitskaya, 2012b).

The fear of another crisis saw regulators and politicians in disagreements since regulators were enforcing the credit crunch while politicians opposed it as it would curtail the finance choices for UK firms. The government’s announcement of a new plan aimed at encouraging banks to loan firms so that the firms can export their products abroad has increased finance choices. Policymakers have embraced technology in banking as opposed to the traditional approval which was done by committees or bank managers which was time and labor intensive. The adoption of technology and hard data enables banks to have a higher grip on credit risks. The launching of the Competition and Markets Authority which mandates banks to share consumer data with third parties as authorized by the consumers will expand financing options for firms as they will be able to access more lenders, make better loan decisions, and enjoy a business boom (Brett & Deloitte, 2018).  Therefore, the recent upsurge in the finance choices for UK firms is due to good policies.