Category: Banking

Abstract

The National Bank of Bahrain is the nations first locally-owned bank, founded in 1957 and owned partially by the countrys government and partly by private investors. This report attempts to analyse the characteristics that determine its attractiveness to investors, namely its financial structure and corporate governance framework. The former appears to be mostly average for the industry, though the bank seems to be highly risk-averse, as shown by its refusal to loan out more than 60% of its deposits. With that said, the behaviour does not appear to be damaging the bank substantially, as its performance is still adequate. There are no concerns regarding corporate governance, as the policies that direct it is robust and cover various aspects of operations. Overall, this report finds that there is no need to adjust the NBBs structure significantly, though intensified loan practices may improve its growth rate.

Introduction

The National Bank of Bahrain (NBB) is the nations first banking institution that operates in the country as well as two others. Its ownership is shared, with private as well as institutional investors and the countrys government holding the entirety of its shares. Its stated mission is to enrich the lives of generations by providing people with opportunities (National Bank of Bahrain, 2020a). To that end, the bank serves private as well as business clients, offering them a variety of services such as account management, relationship management services, and personal as well as mortgage loans. Having been founded in 1957, the institution has created a robust set of governance policies and achieved a strong financial performance. To obtain an improved understanding of the institutions functioning, this report will analyse and discuss its financial performance and corporate governance policies in detail.

Financial Structure Analysis

The NBBs financial structure can be seen from its 2018 and 2019 annual reports, which indicate stable profit growth as shown in Fig. 1. They provide an adequate representation of its recent performance and the trends that may have affected it. The statement by the National Bank of Bahrain (2020b) highlights an ROAA of 2.3% and an ROAE of 14.7% in 2019, and the net profit margin can be calculated to be 59%. Meanwhile, similar statistics for the National Bank of Bahrain (2019a) are 2.2%, 15.2%, and 59.6%, respectively. All of these characteristics, with the possible exception of the ROAE, compare favourably with much of the banking industry. Bank assets tend to be substantially larger than their year-to-year earnings and expenses, which is why the ROA may be lower than in other sectors. With that said, the banks net profit margin is very high, and the ROE is average and sufficient to maintain attractiveness for investors.

With that said, the profitability of the company is not the only determinant of its success. It is also necessary to consider measures of stability, such as the debt-to-equity ratio and sources of funding. Using data from the National Bank of Bahrain (2019a; 2020b), it is possible to calculate the rate, which is 17.5% for 2018 and 20% for 2019. Additionally, it is possible to see from Fig. 2 that the NBBs primary sources of assets are loans, advances, and investment securities, which represent more than two-thirds of the businesss total assets. With that said, as can be seen in the statements by the National Bank of Bahrain (2019a; 2020b), the NBBs loan-to-deposit ratio was 54.3% in 2018 and 58% in 2019, which suggests subpar liquidity of its assets. The bank likely has extensive reserves but is at risk of suffering opportunity costs through missing chances to loan out more of the deposits that it stores.

The last statistic that is of interest to shareholders is the potential of the company to generate value for them, which is expressed through the cost of capital. It consists of two distinct characteristics: the cost of equity and the cost of debt. The cost of equity can be calculated from the financial statements by the National Bank of Bahrain (2020b) and can be estimated at 13.7%. Meanwhile, the cost of debt would be 6%, which would make the total cost of capital 9.8% as the weighted average of the two values. This cost of capital is average for businesses and marks the NBB as neither particularly attractive nor unattractive. Overall, the company appears to be moderately attractive, though there are some issues that it may need to address to improve its overall results.

Governance Analysis

The NBB has a robust corporate governance policy that features an extensive overview of rules and ethics. According to the National Bank of Bahrain (2020c), its systems feature a code of conduct, best practices on consumer credit and charging, anti-money laundering, a complaints procedure, a key persons dealing policy, a business continuity plan, and a whistle-blower policy. The detailed guidelines, available from the National Bank of Bahrain (2019b), outline vital aspects of the NBBs operations such as the roles and responsibilities of the board of directors, the decision-making process, audits, risk management, and others. Explicit descriptions of these practices are critical to securing the trust of the companys shareholders, and the NBB succeeds in providing a clear picture. Additionally, the company offers other documents that further outline its practices and guarantee to the investors that its conduct will be ethical.

As a large business with substantial assets, the NBB may be prone to insider trading on the part of its senior executives. The National Bank of Bahrain (2020d) has introduced a Key person policy that identifies any such individuals and maintains a register of them. The information is then transferred to the Bahrain Bourse, which monitors the stock purchases and sales that they conduct for signs of illegal activity. Additionally, the National Bank of Bahrain (2019c) has a robust whistle-blower policy that protects any employees who disclose wrongful conduct in good faith from unfair treatment and enables them to access the CEO and the Chairman of the Audit Committee to highlight any such mistreatment. The existence of these policies highlights the NBBs commitment to lawful and ethical conduct, which is a sign of a healthy governance structure.

As a bank, the NBB also has to follow specific guidelines that apply to institutions that are primarily occupied with financing and money deposits. The National Bank of Bahrain (2020c) identifies these policies as the Code of Best Practice on Consumer Credit and Charging and programmes against money laundering and terrorist financing. The people who apply for loans must have a clear understanding of the contract that they intend to enter before committing to it. They should be made aware of any changes that take place and have access to pertinent information at any time. Furthermore, the NBB is obligated to identify its customers clearly and prevent the abuse of its systems by criminals. The existence of policies to that effect further serves to enhance the trustworthiness of the banks corporate governance structure.

Discussion

Overall, in terms of financial performance, the NBBs statistics provide an overall positive outlook that makes it attractive to investors. Its ROA and profit margin is high for a bank, and the ROE is average, which marks it as a potentially attractive investment target. However, at the same time, the NBB may present some concerns in terms of liquidity and its efforts to expand. While it has extended its operations to Saudi Arabia and the UAE, it still only has 29 operating branches and 100 ATMs (National Bank of Bahrain, 2020a). A likely reason for this slow expansion is the excessive degree of caution that is exhibited by the bank, which leads it only to loan out 60% of its current deposits. It should be possible to achieve substantial benefits by increasing that figure to 80 or 90% while still maintaining a considerable degree of preparedness for risk.

Most of the NBBs other financial characteristics are adequate for the industry and moderately attractive to the industry. The company favours consistency over rapid growth, providing high-quality, reliable services and generating continuous performance improvements. As such, it is a low-risk investment with consistent performance, which is an attractive category to specific categories of investors. While the bank may be able to alter its strategy to achieve improved performance, doing so is not necessary. The current model is viable, and the NBB has justified it through its sustained success over the last fifty years.

In terms of corporate governance, there is also nothing that requires substantial adjustments or improvements. As a partly nationally owned bank, the NBB is highly motivated to be compliant with the law. As such, its corporate governance framework is robust and incorporates all of the necessary components to achieve excellent ethics. The critical aspects are covered in detail, and updates are supplied to match evolving business circumstances. Both general business ethics and the specific requirements that are applied to banks are covered in detail. The framework enables the company to display consistency and ethical performance, which are highly attractive qualities for investors. As long as it continues to evolve to suit the local and global business environments, no further modification to its corporate governance frameworks and processes should be necessary.

Conclusion

Overall, the National Bank of Bahrain is not an exceptional company, but it performs well compared to other members of the industry. Its financial performance and structure are satisfactory and make it an attractive, low-risk stock for investors. The business may be overly risk-averse, but since these practices do not cause its business performance to decline below an acceptable standard, there is no compelling reason to recommend a change. In terms of corporate governance, there appear to be no issues in the NBBs organisation that warrant a strong response. All of the necessary aspects are covered by respective policies, and investors should not need to be concerned about misconduct at the organisation. Overall, the NBB should continue its current practices, as they have contributed to its currently excellent performance and economic status. If it continues to improve as it has in the past, there should be no investor concerns associated with either of the factors discussed in this report.

References

National Bank of Bahrain. (2019a). Annual report 2018. Web.

National Bank of Bahrain. (2019b). Corporate governance guidelines. Web.

National Bank of Bahrain. (2019c). Whistle blower policy. Web.

National Bank of Bahrain. (2020a). About NBB. Web.

National Bank of Bahrain. (2020b). Annual report 2019. Web.

National Bank of Bahrain. (2020c). Corporate governance. Web.

National Bank of Bahrain. (2020d). Key persons dealing policy. Web.

Introduction

The Islamic banking system has experienced exponential growth across the world. The system has transcended from its existence as a niche to a widespread financial system (Chong & Liu 2009). As the Islamic banks increase, change in the operations dynamism has been witnessed, which has ushered in competition. The competition in the Islamic banking is a concept that has been gaining momentum. According to Berger and Turk (2009), the competition is based on heterogeneity caused by the different Islamic teachings jurisprudence and different needs of the customers. Therefore, the main purpose of the research will be to investigate the effect of competition on profitability and the market power in the Islamic banking system. The research will concentrate on Islamic banking in Saudi Arabia.

Research Objectives

In order to establish the effect of competition on the Islamic banking system, the study objectives will include:

1. To examine whether competition influences the profitability of the Islamic banking system
2. To investigate the effect of competition on market power of the Islamic banking system

Justification of Objectives

Islamic banking has experienced increased competition. The different banks compete to increase their market. Bearing in mind that the Islamic banking system does not attract interest, various arguments have been raised to the effect of the competition on the financial margins. A study conducted by Weill (2011) found that both the small and the large Islamic banks were struggling with the profits. Cihak and Hesse (2010) pointed that competition puts pressure on the pricing strategies. In Saudi Arabia, financial margins obtained from various Islamic banks show inconsistent financial margins (Cihak & Hesse 2010). Some banks have shown erosion in the financial margins while others have been stable (Peter & Phillip 2007). Alkhathlan (2010) argued that the new trends and the increased demand of customers for the share of the return on profits share might end negating the core principle and advantage of the Islamic banking.

In the conventional banking system, competition is a core determinant of profitability. The competition affects the customer base of the banks. In many occasions, banks employ price competition such as lowering the interest rates in order to attract more customers (Berger & Turk 2009A). However, for the Islamic banking system, the rate of return is not pegged to the interest rate. In Saudi Arabia, the Islamic banks face a clot of competition both from the other Islamic banks and from the conventional banks. Each bank tries to gain competitive edge by the introduction of services that address the needs of the customers. Alkhathlan (2010) noted that market share determines profitability. The perspective is backed by the assumption that, efficiency leads to bigger market share; hence, increased profits.

The greater the market share, the more the market power a bank has over its products and the services it offers (Berger & Turk 2009). The perspective of market share has been extensively studied in conventional banking systems. However, in the Islamic banking there is scant information on the effect of competition on the power of Islamic banks. The available studies compare the market power between the conventional and Islamic banking system, which essentially may not give clear indications bearing in mind the principles of operations are very different. The conventional banks are driven by the return on the interest while the Islamic banks rely on Sharia law as the basis of profit sharing.

According to Chong and Liu (2009), the forces of competition in the Islamic banking revolve around the product differentiation, the operational excellence and the distribution channels employed by the banks. Therefore, the Sharia, which serves as the primary differentiator, has been vanishing very fast. In addition, the Sharia-compliant banks are not monopolistic; they face competition from other financial institutions that provide products that are based on the non-interest principle. Chong and Liu (2009) concentrate on the different competition platforms applied by the Islamic banks; they do not establish the effects of the competition in the Islamic banking system.

As competition in the Islamic banking systems intensifies, there is the need for the investors and scholars to understand the sources of differentiation applied to gain competitive edge within the Islamic banking systems. In addition, establish the influence of competition on the profits and market power of the banks. The understanding will be based on clear knowledge of the effect of competition on the profit ratios and the banking power.

Research Methodology

In order to establish the influence of the competition on the profitability of the Islamic banks, the study design will be cross-sectional and time series methods. Data will be collected from quarterly reports of various Islamic banks operating in Riyadh. Since the objective will be to determine the influence of competition on the profitability of the banks, the data will be subjected to comparative analysis. The comparison will help to determine the profit margins when there were few banking institutions and after the banking institutions increased. The assumption that will be applied in the study is that as time progresses there are new entrants; hence, competition increases. The banks to be included in the study will include the banks that have been in existence in Riyadh for the last ten years and are fully Sharia compliant. In order to determine the effect of competition on the marketing power, a descriptive study design will be applied. The descriptive study will provide the state of affairs in the Islamic banking system amidst the competition.

The inclusion of the banks to the study will be through random sampling procedure. According to Mitchel and Jolly (2010) simple random sampling is very effective in getting a representative sample from a large sample group. In Riyadh, many financial institutions employ Islamic banking system. Thus, the simple random will be appropriate. Mitchel and Jolly noted that the simple random sampling technique is free from human bias and avoids the classification errors, by giving each unit an equal chance of being selected. The study sample will be ten banks. In addition to the simple random procedure, a purposive sampling will be applied in the identification of the managers to be interviewed. The purposive sampling depends on the judgment of the researcher in the selection of the people to be included in the study. According to Creswell (2009), purposive sampling is advantageous when specific information is required from specific people. In such a case, specific information will be required from the managers on the marketing power in the Islamic banking systems. Ten managers from the randomly sample banks will be interviewed. The combination of the simple random and purposeful sampling is expected to give comprehensive data for the research.

Time schedule

Successful research entails the process of planning the various activities that are involved in the study process, organizing and controlling resources. According to Kirkland (2014), research entails setting clear timelines that involve the procedures to be followed in order to achieve specific goals. The following is the time schedule that will used to guide my research.

Resource Requirements

The process of conducting a study requires the formulation of objectives and putting in place the strategies to achieve the objectives. The strategies include identification of the materials and equipment that are to be used in the study and precise budgetary allocations. According to Randolph (2014, p. 36) the primary constraint to achieving the initial time plan is due to functional challenges that relate to poor resources and budget allocations. In order to complete the study, the resources that will be required will include; transportation means, budgetary allocation for the activities, tools to collect and analyse the data, equipment for storage of the data and presentation.

Conclusion

In Saudi Arabia, there have been increases in the number of players that are offering the financial solutions that are Sharia compliant. Even though the Sharia law drives the Islamic banking system, the banks have devised innovative ways by the introduction of products to attract customers and gain a competitive edge. Studies conducted on the operation of the Islamic banking system have concentrated on the platforms employed to gain competitive advantage. Recent studies such as those that carried by Berger and Turk (2009) have endeavoured to establish the role of competition in the interest-free banking system. Therefore, the studys main objective will be to establish the effects of competition on the profit margins and the market power of the Islamic banks in Saudi Arabia.

References

Alkhathlan, K. 2010. Are Saudi Banks Efficient? Evidence using data envelopment analysis (DEA). International Journal of Economics and Finance, vol. 1, no. 1, pp. 12-34.

Berger, L and Turk, R. 2009. Bank competition and financial stability. Journal of Financial Services Research, vol. 35, no. 1, pp. 99118.

Cihak, M. and Hesse, H. 2010. Islamic banks and financial stability: An empirical analysis. Journal of Financial Services Research, vol. 38, no. 2, pp. 95-113.

Chong, B. and Liu, M. 2009. Islamic banking: Interest-free or interest-based? Journal of Pacific-Basin Finance, vol. 17, no. 1, pp. 125-144.

Creswell, J. 2009. Research design: Qualitative, quantitative and Mixed methods approaches. Sage, Thousand Oaks, CA.

Kirkland, C. 2014. Project Management: a problem-based approach. Project Management Journal, vol. 45, no. 1, pp. 63-92.

Mitchell, M. and Jolly, J. 2010. Research design explained, Wadsworth, Belmont, CA.

Peter, V. and Phillip, W. 2007. Competing successfully in Islamic banking, Booz and Company, Albany, California.

Randolph, S. 2014. Maximizing project value: a project managers guide. Project Management Journal, vol. 45, no. 2, pp.22-41.

Weill L. 2011. Do Islamic Banks Have Greater Market Power? Comparative Economic Studies advance. Journal of Banking and Finance, vol. 18, no. 1, pp. 445459.

Introduction

This section will briefly introduce two scientific approaches to monetary policies. In particular, it will be important to mention the debate between Banking and Currency Schools. One should also identify the leading representatives of the two schools such as Robert Torrens and Thomas Tooke (Daugherty 140).

It is important to illustrate the influence of these theoretical approaches on the decisions of policy-makers. This thesis of the paper will be a statement about the importance of the Currency and Banking Schools, especially their influence on the decisions of policy-makers.

Theoretical views

Currency School

At first, it is important to show how the representatives of this approach perceived the monetary system. Furthermore, this section should illustrate the definition of money offered by the supporters of the Currency School. Furthermore, one should demonstrate why Robert

Torrens attached importance to the existence of a metal standard. The advocates of this school laid stress on the idea that the banknotes circulating in the country should be convertible into gold (Skaggs 361). The implications of this principle should be discussed in greater detail.

Moreover, this section will explain why the supporters of the Currency School laid stress on the need to control and restrict the circulation of banknotes in the country. This section will also throw light on the influence of these ideas on the monetary policies of Great Britain.

Banking School

This section will examine the theoretical arguments expressed by the advocates of the Banking Schools. In particular, one should discuss their views on the restrictions of currency circulation.

Furthermore, it is important to discuss the Real Bills Doctrine which implies that banks should be able to offer short-term credit in order to support trade. Thus, the restriction of banknote circulation can produce detrimental effects.

Additionally, much attention should be paid to the discussion of the so-called law of reflux which implies that the banknotes which are of no value to the citizens will be inevitably returned the financial institutions that issued these banknotes (Hortlund 219). This part of the paper will also illustrate the implications of this law for the work of financial regulators.

Analysis

The information discussed in the previous section will be used to illustrate the main differences between the two approaches to monetary policies.

The Bank Charter Act of 1844

This section will illustrate how the ideas expressed by various economists influenced the decision of policy-makers. In particular, it is important to show the ideas expressed Robert Torrens and his supporters were reflected in the provisions of the Bank Charter Act adopted in 1844. This section will indicate that the British government adopted the principles identified by the advocates of the Currency School.

Discussion

This part of the paper will examine the importance of Currency and Banking Schools. In particular, it is important to show how these theoretical ideas influence the decision of modern policy-makers. For instance, much attention should be paid to the relation of the Real Bills Doctrine to the U.S. monetary policies (Timberlake 196). This section will also show if the issues debated by the nineteenth-century economists remain relevant nowadays.

This debate can be related to the arguments put forward by such economists as Hayek and Friedman who study various aspects of monetary policies (Block 15). This analysis will illustrate the historical importance of the Banking and Currency Schools. These are the main issues that should be discussed in this section.

Conclusion

This section will contain a brief overview of the issues discussed in the paper. It is important to focus on the importance of this debate. Finally, this part of the paper will also include a restatement of the initial thesis.

Works Cited

Block, Walter. The Gold Standard: A Critique of Friedman, Mundell, Hayek and Greenspan from the Free Enterprise Perspective. Managerial Finance 25.5 (1999): 15-33. ProQuest. Web. 4 Nov. 2014.

Daugherty, Marion. The Currency-banking controverse. Southern Economic Journal (pre-1986) 9.2 (1942): 140-146. ProQuest. Web. 4 Nov. 2014.

Hortlund, Per. Is the Law of Reflux Valid? Sweden, 1880-1913. Financial History Review 13.2 (2006): 217-34. ProQuest. Web. 4 Nov. 2014.

Skaggs, Neil. Changing Views: Twentieth-Century Opinion on the Banking School-Currency School Controversy. History of Political Economy 31.2 (1999): 361-91. ProQuest. Web. 4 Nov. 2014.

Timberlake, Richard. Gold Standards and the Real Bills Doctrine in U.S. Monetary Policy. Econ Journal Watch 2.2 (2005): 196-233. ProQuest. Web. 4 Nov. 2014.

Introduction

Merger is one of the most common business practices in the current competitive market. According to Van (2010), as firms struggle to manage challenges in the market, they find it more beneficial operating as large entities other than small business units. They get to enjoy economies of scale and other benefits associated with mergers. In the banking sector, mergers and takeovers have become very common. Large financial entities such as JP Morgan Chase Bank and Wells Fargo have expanded their operations over many countries around the world through mergers and acquisitions. This clearly demonstrates that this business strategy can help a firm gain a competitive edge over its market rivals. However, some critics argue that merger is a dangerous strategy that should be discouraged as much as possible. Kumar (2012) says that a merger of dominant players in an industry kills competition. It creates a monopoly where a single firm controls a very large market share, making it difficult for smaller players to survive. The long-term effect of such strategies is that the value offered by dominant firms will drop because they lack competition in the market. In this paper, the researcher will look at the relevance of banking mergers in the modern market.

Overview of the research

Banking industry is of critical importance to the development of a countrys economy. In the United States, the banking sector plays a critical role in facilitating trade. According to Shull and Hanweck (2001), mergers and acquisitions have become very common in the recent past. The leading financial institutions, such as JP Morgan Chase, Wells Fargo, Citibank, Bank of America, Deutsche Bank, and Bank of New York Mellon have grown to become the leading financial institutions through acquisitions. However, some critics argue that they pose serious threats to the growth of banking industry. In this study, the main focus is to determine the relevance of mergers in the banking industry. The researcher will look at both the advantages and disadvantages of using such a strategy to an economy. Both the primary and secondary sources of information will be collected in order to respond to the research questions.

Research Questions

Research questions play a very important role when conducting a research. The questions act as a guide to the researcher. They help in identifying the relevant data that directly addresses the issue under investigation.

• What is the best growth strategy that a bank should consider between merger and banking final aggregate value?
• What are the benefits of banking merger to employees, savers, businesses and the economy in general?
• What are the disadvantages of banking merger to employees, savers, businesses and the economy in general?
• The researcher seeks to find answers to the above research questions using both the primary and secondary sources of data.

Literature Review

According to Castillo and McAniff (2007), banking mergers and takeovers are some of the strategies that firms use to expand their operations. Instead of opening new branches, banks consider mergers as the best way of achieving growth. In the United States, mergers have been common for a long time. One of the first initial merger deals was signed between Berks County Trust Company and Schuylkill Valley Bank in 1923. This was a successful merger deal that helped Berks County Trust Company expand its operations to the regional market. This bank was later acquired by Wells Fargo. Another successful acquisition was between Fidelity Trust Bank and Philadelphia Trust Company. The two firms formed Fidelity-Philadelphia Trust Company in 1926. More recently in 2014, Old National Bank merged with United Bank & Trust in order to enhance their competitiveness (DePamphilis 2013, p. 78). Growth of these companies benefits the economy in many ways. These firms are able to pay higher taxes and employ more people when they grow.

Mergers in banking sector have a number of benefits to businesses, making it very popular in the current competitive market. According to Ayadi and Pujals (2005), one of the main reasons why firms consider merging is to reduce competition in the market. Sometimes the level of competition can be so high that firms may start experiencing losses. In order to reduce or even eliminate such unhealthy and unsustainable market rivalries, firms may consider merging. This makes them a single unit that can cooperate to achieve better success. They can afford to drop unsustainable competitive strategies that they were using to attract customers. Maharaj (2001) says that mergers also help firms expand without having to incur heavy costs. Mergers also help in reducing the cost of managing servers. After the merger, servers are centralised, cutting the cost by almost half. Employees also get to benefit from such mergers. They get to share the experiences and skills learnt in their respective firms.

Mergers help firms share their operational experiences in the market. According to DePamphilis (2013), firms may specialise in different aspects of banking. Many large firms are now considering merging with mortgage banks because of the expanding real estate market. Mortgage bank will not only come with a pool of customers, but also with a massive experience in this sector of the market. Shared knowledge makes new firm understand dynamics in the market in a better way than when operating as a separate entity. Gup (1989) says that mergers are also very important when it comes to sharing of risks. The recent recessions experienced in North America and Europe affected many banks. Firms can be in better positions to manage these risks when they merge. They will bring together their experiences and knowledge of dealing with market risks. They will also have a large pool of financial resources to cushion them against impact of unexpected market risks.

According to Miller and Amihud (1997), although mergers have become very popular in the banking sector, they have a number of disadvantages to the economy that should not be ignored. One of the main disadvantages of mergers is that they eliminate market competition. Healthy market competition is very important in enhancing growth of an industry and economy in general. It helps rival firms to improve their products quality and production methods. Through this, they become competitive firms that can thrive well not only in the local but also in the regional or international market. However, mergers kill this competition. It gives dominance to one or a few firms that find themselves in control of the larger market share. Maharaj (2001) says that such situations bring laxity. They limit creativity of businesses in managing market competition, and this inhibits their ability to compete favourably in the international market. Such businesses become vulnerable to new market entrants that have superior marketing and production strategies.

Gup (1989) says that another criticism directed against merger is that it affects customers negatively. In the current society, customers are informed and prefer having choices to make whenever they want to purchase a product. However, choices are only available in a perfect competitive market where there are many firms offering the same product. When mergers become common in an industry, then the market changes to become monopolistic in nature. This denies customers ability to make choices. Mergers may also have a negative impact on servers. When a firm has a number of competitors, it makes an effort to improve its servers as a way of enhancing its competitiveness in the market. However, when the competition is eliminated, they become relaxed and ignore the need to upgrade the servers.

Mergers may motivate foreign firms to flock the local market. According to Dymski (1999), competition is considered healthy when the number of suppliers is just enough to offer needed products to customers. However, when the number of suppliers exceeds demand in the market, then the price of products may drop to unsustainable levels. This makes it difficult to conduct businesses. Mergers create a wrong image about the number of players in the market. A foreign firm will easily consider entering into such a market, believing that the level of competition is very low.

What they fail to understand is that two or more firms which were initially operating independently have merged to operate as single entities. All their branches and customers remained intact during such mergers. According to Miller and Amihud (1997), mergers may sometimes be a threat to employees of a firm. After two or more firms come together as a single entity, one of initial activities done in the restructuring process is to eliminate redundancy. This means that an audit will be conducted to identify the employees doing the same jobs. Such employees will be redeployed to other departments if that is possible, or be laid-off during restructuring process.

Benefits and disadvantages discussed by the scholars present a very strong argument. It is apparent that mergers can be very beneficial to a firm in terms of expansion and reduced market competition. However, they come with consequences that may have devastating effects. As Walter (2004) says, when a merger is done correctly, then the new entity can be very successful. However, when this is done in a wrong way, it may have serious negative effects on the two firms coming together. It becomes necessary to find ways of bringing two firms together in a way that will minimise these negative consequences as much as possible (Rosenbaum & Pearl 2013, p. 34).

Importance and justification of the research

Mergers have become very common in the current business environment. Some of these mergers have been successful while others have been disastrous. Researchers have been trying to come up with a proper guidance that can be followed by firms when they consider merging. This research is important because it will enhance this body of knowledge. It will identify the existing gaps in the current literatures with a view of providing a detailed and holistic way through which firms can merge. This will help the policy makers to come up with informed decisions on issue of mergers. Future scholars will also find this report very important. It will provide them with background information on this topic that will inform their entire research. This makes it necessary to come up with a document that is comprehensive enough to meet the needs and expectations of these different stakeholders.

Methodology

When conducting research, it is always important to define an appropriate research method that will be used in data collection, analysis and presentation of the findings. This is the focus of this section of the report.

Data collection methods

In this study, the researcher will use both the primary and secondary sources of data. Secondary sources of data will be retrieved from books, journal articles, and other reliable online sources. They will act as a background of the study. Primary data will be taken from sample respondents from executives in the banking industry, government officials responsible for protecting competition within the market, and experts in the field of mergers. The researcher will use a questionnaire to collect information from the respondents. The questionnaires will be e-mailed to the participants. This decision was made because of limited time as most of the participants had tight schedules. This approach enables them to answer questions at any time they feel comfortable.

Sampling strategy

As mentioned in the section above, there will be three different groups of participants who will take part in this study. This makes it necessary to use stratified sampling strategy. Within the three strata, the researcher will use simple random sampling to identify the participants.

Data analysis

Data will be analysed both quantitatively and qualitatively. Quantitative data generated from the questionnaire will be analysed using Statistical Package for Social Scientists (SPSS). The statistical values will be supported by qualitative explanations.

Research Planning

It is necessary to define the timeline for this research project in order to plan for the time available for all activities. The project will be completed within the next five weeks. Gantt chart below shows the activities in the project and their timeline.

Timeline of Project Activities

As shown in the above Gantt chart, the entire research project is expected to take five weeks to be completed. Each of the project activities has a set timeline. However, it is important to note that some of them may be completed earlier than the set timeline. All weekends have not been considered as working days in this project. It means that a week has five working days in this plan. The first activity in the schedule is the development and approval of the proposal. The proposal will have to be approved before the researcher can start the process of collecting primary data. In the second week, the researcher will collect and review relevant literature from different sources. This will be followed by primary data collection. Analysis of primary data will be done before writing the entire report.

Hypothesis

The researcher has developed research hypotheses that will be confirmed through analysis of primary data. They include the following.

• H 1 Mergers are beneficial to banks if they follow the right procedures
• H 2 Mergers reduce market competition significantly
• H 3 Mergers can negatively affect banking industry if they are not controlled.

List of References

Ayadi, R & Pujals, G 2005, Banking mergers and acquisitions in the EU: Overview, assessment and prospects, SUERF, Vienna.

Castillo, J & McAniff, P 2007, The practitioners guide to investment banking, mergers & acquisitions, corporate finance, Circinus Business Press, Solana Beach.

DePamphilis, D 2013, Mergers, acquisitions, and other restructuring activities: An integrated approach to process, tools, cases, and solutions, Cengage, New York.

Dymski, G 1999, The bank merger wave: The economic causes and social consequences of financial consolidation, Sharpe, Armonk.

Gup, B 1989, Bank Mergers: Current Issues and Perspectives, Springer, Dordrecht.

Kumar, B 2012, Mega mergers and acquisitions: Case studies from key industries, Palgrave Macmillan, Hampshire.

Maharaj, A 2001, Bank mergers and acquisitions in the United States, 1990-1997: An analysis of shareholders value creation and premium paid to integrate with megabanks, McMillan, London.

Miller, G & Amihud, Y 1997, Bank mergers & acquisitions: An introduction and an overview, Kluwer, Boston.

Rosenbaum, J & Pearl, J 2013, Investment banking: Valuation, leveraged buyouts, and mergers &acquisitions, Wiley, Hoboken.

Shull, B & Hanweck, G 2001, Bank mergers in a deregulated environment: Promise and peril, Quorum Books, Westport.

Van, H 2010, The industrial organisation of banking: Bank behaviour, market structure, and regulation, Springer, Berlin.

Walter, I 2004, Mergers and acquisitions in banking and finance: What works, what fails, and why, Oxford University Press, New York.

History Of Banking

The United States of America has the most powerful banking system in the world. However, this system is one of the youngest, and banking has its own specifics with a lot of restrictions and even archaic elements. Its own banking structure appeared in the United States during the struggle for independence at the end of the 18th century. The role of the US financial sector largely determines many global processes.

From 1781 to 1783, the Bank of North America operated, which was both a commercial bank and the main bank of the country, with a state share of 60% (Walter, 2019). In 1811, the First Bank was not renewed its license due to contradictions between the authorities (Walter, 2019). From 1816 to 1833, The Second Bank of the United States operated as the central bank (Walter, 2019). However, in 1818-19, the US economy experienced a recession, which affected the position of the Second Bank (Walter, 2019). From 1837 to 1862, the United States dispensed with a central bank; in 1863, the Law on National Banks appeared (Walter, 2019). Several banks still had the opportunity to print dollars, but it had to be done with the permission of the Treasury. Individual currencies of the states gradually went out of circulation; different banks began to issue the same dollars.

Community Reinvestment Act

In the 1960s and 1970s, lawmakers noticed that banks were not offering profitable loans to low-income communities (Wachter & Ding, 2020). Banks argued that borrowers in these areas were higher-risk borrowers they did not want to serve. It was difficult to assess creditworthiness using traditional credit assessment tools. People in low-income neighborhoods were less likely to get loans of any kind in their name since it usually took a certain income to get loans.

Lawmakers and activists argued that the banks were discriminatory; this was due to the fact that many of these underserved areas were also areas with large populations of racial minorities. There has been a long history of residential segregation in the United States, which has prohibited people of different skin colors from buying houses where they like it. The Community Reinvestment Act of 1970 was passed so that banks would have the incentive to do more business in these previously ignored areas.

Benefits of CRA

Some of the advantages due to which CRA passed were associated with the easing of mortgage discrimination. Congress passed the Community Reinvestment Act to encourage lending, property ownership, and business expansion. The CRA originated to promote economic growth in depressed areas. Among the advantages of the Community Reinvestment Act of 1970 was also meeting the needs of local communities for credit resources in the territory where their charters are registered. It encouraged lenders to provide mortgage loans to families with low and moderate incomes to work in poor areas. In addition, creditors subject to the Reinvestment Act underwent periodic inspections for compliance with the requirements of this Law. Public authorities used their supervisory powers to encourage financial institutions to meet the credit needs of the local community in a reliable and reasonable manner. This system has greatly contributed to the development of lending to households with low incomes.

Effect on the Communities

Theoretically, loans have become available to the poorest, whose incomes are almost 80% less than the average level in the local community. However, the CRA did not play a role in the housing boom since it was adopted in 1977, while the subprime mortgage boom followed only in the early 2000s (Calem et al., 2020). It is necessary to take into account the fact that the Law began to be enforced much later.

Mortgage banks, which provide more than 50% of all mortgage housing loans, including to families with low incomes, were not subject to the regulation of the Reinvestment Act (Calem et al., 2020). Therefore, it is difficult to consider the increase in the share of homeowners among low-income families as the merit of this Law alone. Specific figures show that lenders not regulated by the Reinvestment Act provided more loans to low-income home buyers. At the same time, lenders regulated by this Law provided many housing loans that were not related to lending to families with low and moderate incomes. Often, the Reinvestment Act did not have a decisive motivating effect on creditors.

Role With Banks

In order to force banks to participate in these programs, the main tool used  was the authority of regulators to issue permits for mergers and acquisitions. During the subprime boom, large banks sought expansion and therefore had to agree to participate. The conditions forcing lenders to work in the market of loans provided to low-income groups of the population were still unprofitable for them. To assess the impact of the Reinvestment Act on banks, the Federal Reserve interviewed 500 large commercial lenders (Calem et al., 2020). Each respondent was asked to estimate the costs associated with lending in accordance with the requirements of the Reinvestment Act. According to 82% of respondents, this lending was profitable but less profitable than conventional market lending (Calem et al., 2020). This was due to high credit losses and low loan prices for low-income families. In an effort to expand the ownership of the real estate, significant economic checks and balances broke down, which was one of the reasons for inflation.

References

Calem, P., Lambie-Hanson, L., & Wachter, S. (2020). Is the Community Reinvestment Act still relevant to mortgage lending? Housing Policy Debate, 30(12), 46-60.

Wachter, S., & Ding, L. (2020). The past, present, and future of the Community Reinvestment Act. Housing Policy Debate, 30(1), 1-3.

Walter, J. (2019). US bank capital regulation: History and changes since the financial crisis. Economic Quarterly, 105(1), 1-14.

Component of bank funding and their importance

Banks operating in Australia have a variety of sources of funds. The main components are deposits, short-term debts, and long-term debts. Over 50% of bank funding originates from retail deposits. Approximately 40% of the total funds emanate from the financial market. Banks draw short-term and long-term sources of finance from the financial markets to increase their lending capacity. In addition, financial markets offer a variety of funds to the banks. This enables banks to spread their sources of funds and to access a large amount of money and for a longer term than deposits. Trading in the money market enables banks to manage liquidity. In addition, it enables banks to secure investment and thus, earn interest. The rest of the banks funds arise from the equity which takes less than 10% of the capital structure of a bank. A bank must maintain an appropriate mix of these three main sources of funds to ensure its stability both in the short and long run. This will ensure that they offer a secure place for customers funds and adequate return for the shareholders. Key risks that a bank must manage are liquidity, funding and credit risks (Reserve Bank of Australia 2011; Hunt & Terry 2011).

Changes in components of funding

The above three components of a bank fund offer the fundamental sources of funds in a bank. It is inevitable to point out that there has been a significant metamorphosis of funding sources that the banks use in the past few years. Specifically, banks have shifted away from the use of short-term wholesale funding to deposits. Further, there has been an increase in the use of long-term secured issuance such as covered bonds. Secondly, there has been an increase in deposits from 40% in 2007 to 52% currently. This increase in deposits is countered by a decline in short-term wholesale funding. Further, within deposit funding, banks have increased long-term deposits which attract high-interest rates. As of 2007, a term deposit accounted for 30% of total deposits and has increased to 44%. Finally, banks have shifted away from the use of wholesale debt securities. This comprises wholesale trade securities and securitization. From the analysis, it is evident that banks have tried to increase the average maturity of their funding (Reserve Bank of Australia 2012). The changes in the funding sources aim at providing the banks with a stable source of funds that is not highly vulnerable to market volatility. The graph below shows the trend of share of total funding composition of major banks in Australia, other Australian-owned banks and foreign banks between 2008 and 2012.

Reasons for changes in components

The changes in the funding sources for banks are mainly attributed to a reassessment of funding risk by banks globally. The reassessment was instigated by the global financial crisis which resulted in market and regulatory pressure. Before the global financial crisis, banks reported outstanding performance characterized by low lending interest rates and profuse liquidity. In as much as deposits were increasing, lending exceeded deposits in most of the financial institutions. Banks paid high-interest rates to attract deposits which is a significant source of funding. Paying high-interest rates for deposits and low interest for loans created a gap in the banking industry. To bridge this gap, banks resorted to quick sources of funding such as trading in the money market. Over time, banks reduced long-term sources of funding and resorted to short-term funding from the security market. This led to maturity mismatch caused by the growing unevenness between long-term lending to customers and short-term funding. Also, currency mismatch played a role in the changes in sources of funding. Between 2000 and mid-2007 net long dollar position grew to around USD 800 billion being funded in Euro (European Central Bank 2009). It created significant exchange rate risk and considerable dependence on the foreign exchange swap market (European Central Bank 2009). Several banks incurred hefty losses as a result of foreign exchange risk. From the discussion, banks incurred massive losses and some were faced out of the industry. Lessons learned from the global financial crisis have compelled banks to adopt long-term sources of funding.

Composition of funding in the next two years

The Reserve Bank of Australia became more thorough than it was before in monitoring the banking industry in Australia after the global financial crisis. It exerted more pressure on banks to lower the levels of funding risk. It aims to restore public confidence in the banking industry and to salvage the financial institutions which never shut down after the crisis. These regulations have brought a significant positive impact on the growth of the banking industry. First, the Reserve bank has been able to control the level of intermediaries funding costs by use of the cash rate. This in turn controls the level of lending rates. Further, funding costs decline in unqualified terms. Deposit pricing has been kept optimal as a result of stiff competition in the industry (Reserve Bank of Australia 2012). Finally, there has been a general rise in the spread of wholesale debt issued by banks. Strictly speaking, it might not be completely feasible for banks to curtail over-relying on the capital and security market for funding. This can be achieved when big banks adopt a long-term funding strategy thus, pulling out a small bank of the security market. The appropriate funding mix may also be attained by the need of households and businesses to reduce leverage hence, a decline in credit growth (Austrian Center for Financial Studies & KPMG 2011).

Assuming a scenario where the Reserve Bank of Australia stimulates businesses and consumer investment through low-interest rates, this will imply the availability of credit growth and deposits in the banking industry since there will be a general increase in the level of economic activity in the country. The graph below gives the values of the share of various funding sources between 2004 and 2012. From the graph, we can monitor the trend of various components and predict the composition of funding for the next two years.

The table below shows forecasts of the composition of various funding sources for 2013 and 2014.

(Source of data for 2007 and 2012  Reserve Bank of Australia 2012)

From the table, deposits will continue to be a major source of funding. Due to increased economic activity, deposits will grow from 54% in 2013 to 55% in 2014. Short-term debt will slightly decline due to interbank trading. Long-term debt will increase by a small margin so as to comply with the regulators requirements. Equity will remain stable over the years. Securitization by banks will decline up to 1% and even lower in the coming years until the industry stabilizes. The graph below shows the trend of forecasted funding sources from 2012 to 2014.

References

Austrian Center for Financial Studies & KPMG 2011, The future of Australian bank funding. Web.

European Central Bank 2009, EU banks funding structures and policies. Web.

Hunt, B & Terry, C 2011, Financial information and markets, Cengage Learning Australia Pty Limited, Sydney.

Reserve Bank of Australia 2011, The effects of funding costs and risk on banks lending rates. Web.

Reserve Bank of Australia 2012, Funding composition of banks in Australia. Web.

Introduction

The 2015 historic international agreement on the Sustainable Development Goals (SDGs) encourages all parties to establish and construct efficient local implementation systems. The policies require that members work with the World Bank to gather and evaluate data for measuring progress (Roa et al., 2019). This essay examines the role of the World Bank in bolstering SDG measures to combat poverty and promote development. The objective is to inform the formulation and execution of policy document metrics that outline the processes for reducing poverty following the SDGs. Addressing the needs of the poor and vulnerable via inclusive and accountable service delivery is one of the several implementation areas in which the World Bank Group is active. The World Banks primary duties supporting the SDGs include providing funding, technical assistance, policy guidance, and bolstering the private sector.

World Bank Providing Financing

The World Bank needs to collaborate across all sectors and regions to assist nations in achieving the SDGs. Currently, the Bank provides strategic guidance and assistance for realizing the SDGs, especially via development finance (Rashid 2019). It has been established that the trends in commitments to the SDGs for the 2030 Agenda and SDG execution have substantially influenced the quality of life in developing nations (Hickel 2019). However, reservations over the World Banks emergency funding for economies in decline, such as Sri Lanka and Pakistan (Khan et al., 2019). In response, the World Bank Group must establish more ambitious objectives to assist struggling countries in achieving stability by 2030. Some measures must concentrate on eradicating severe poverty and fostering shared prosperity. These objectives are best accomplished within a socially, economically, and ecologically sustainable paradigm.

The World Banks finance committees must recognize the effect of the global health epidemic on nations ability to achieve previous Sustainable Development Goals. Recent alterations reflect the need to reorganize finance, such as the International Development Association (IDA)18 replenishment for 2017 to 2020, which adopted a hybrid financing strategy. More policy actions can be explored in response to the intensifying global crises and the rising dangers of wars, climate change, and world hunger (Rashid 2019). The World Bank could examine the IDAs huge accumulated equity to obtain cash on the financial markets. Such a policy initiative may raise available funds for countries, allowing for much higher assistance for the poorest nations. The policy initiatives should be consistent with the present IDA Private Sector Window, which promotes the establishment of marketplaces in low-income and fragile and conflict-affected nations.

World Bank Offering Technical

For the successful and coordinated implementation of the SDGs, the World Bank must give technical support to both governments and the private sector. The technical assistance policies include strategies for food security, renewable energy, equitable growth, and urban restructuring. The policies should address the mechanics of pollution control, institution creation, and entrepreneurship in the private sector in equal measure (Roa et al., 2019). The Bank Group should use innovation and technology to create sustainable economies and increase individuals and institutions ability to succeed in this constantly changing environment. Through initiatives such as the Women Entrepreneurs Finance Initiative (We-Fi), the World Bank is now helping women engage more completely in the national economy (Khan et al., 2019). The rules should be revised to increase womens access to the capital, markets, technology, and networks required to launch and develop their firms.

The World Bank should advise using cutting-edge technology in decision-making and project management. The technical teams should intensify the management of high-quality data, offering policymakers and aid agencies significant assistance (Hickel 2019). These initiatives might facilitate household surveys in dozens of nations for the Data for Policy Initiative, which is required for policymakers to acquire and utilize data. Currently, the World Bank is trying to help institutions with the SDG Atlas, which provides policymakers and the private sector with a visual representation of crucial data on the objectives. Such endeavors should be supported by policies that encourage the investigation of Artificial Intelligence trends to enhance the quality of corporate settings that can support the SDGs.

Strengthening the Private Sector

The World Bank should further defend the private sector by supporting inclusive and sustainable economic development. The finance and effect evaluation should prioritize the private sectors job creation and infrastructure investment. The policies should facilitate investments in human capital, such as early childhood development, job-related skills, and fair opportunities in education, health care, and training (Roa et al., 2019). Such action may have the greatest impact on a countrys potential to expand sustainably and grow as competitive internationally over the long run. Policies in the private sector should prioritize creating resilience to global shocks and dangers by intensifying efforts to address global concerns that threaten to derail progress. The proposed policy initiatives represent a commitment to serve all customers across the socioeconomic range, to take the lead on global problems such as environment and gender, and to create markets by mobilizing additional capital. Utilizing the World Bank Group as a capital mobilizer and boosting private sector investments should emphasize policy implementation.

World Bank Providing Policy Advice

Strengthening the private sector further necessitates implementing policy measures that facilitate the expansion of public and private sector resources. For the current cycle of IDA, the policy advice should include best practices for record replenishment with donor partners. As stipulated by the SDGs, policy formulation and implementation assistance may greatly increase the average annual lending capacity until 2030 (Rashid 2019). This assistance is essential to the World Banks aim to increase private sector financing while maintaining finite public resources for the poorest countries. The World Bank must collaborate with other multilateral institutions, civil society, and other global, national, and subnational players to address the most urgent global issues and attain the SDGs.

In addition, the Bank must continue to assist nations in establishing solid legal frameworks for combating money laundering and terrorist funding. Currently, the World Bank assists nations via the Stolen Asset Recovery (StAR) project in collaboration with the United Nations Office of Drugs and Crime (Otterbein 2020). The World Bank should assist nations in enhancing their ability to investigate and manage financial fraud and recover the profits of corruption (Roa et al., 2019). Participants at the Global Forum on Asset Recovery, held by the Bank Group to assist target nations in recovering the profits of corruption from financial centers, approved a set of principles for the return of seized assets ethically and transparently. Since then, civil society groups have accepted these guidelines as the standard for recovering stolen assets. Enhanced policy support should use innovative technologies to enhance financial transparency.

Conclusion

The World Bank plays a significant role in advancing the SDGs, notably via the provision of funding, technical assistance, policy guidance, and private sector development. While formidable obstacles impede our capacity to attain the SDGs, there are policy measures that help lessen catastrophes. The World Bank must assist the SDGs in minimizing the effects of global conflict, climatic shocks, and fast technology advancement. The policy must prioritize and solve water and sanitation difficulties, health and pandemics, education and job training, and infrastructure challenges in developing nations. The World Bank can further help the SDGs by providing governments and the business sector with knowledge about climate change mitigation and humanitarian crisis response. Effective policy implementation requires analyzing and resolving a pressing global political issue.

References

Hickel, J. (2019). The contradiction of the sustainable development goals: Growth versus ecology on a finite planet. Sustainable Development, 27(5), 873-884.

Khan, M. A., Husnain, M. I. U., Abbas, Q., & Shah, S. Z. A. (2019). Asymmetric effects of oil price shocks on Asian economies: a nonlinear analysis. Empirical Economics, 57(4), 1319-1350.

Otterbein, M. (2020). Physical activity & the sustainable development goals: a public health approach towards advancing the power of movement. Journal of Emerging Sports Studies, 3(1), 13-84.

Rashid, L. (2019). Entrepreneurship education and sustainable development goals: A literature review and a closer look at fragile states and technology-enabled approaches. Sustainability, 11(19), 5343-5411.

Roa, L., Jumbam, D. T., Makasa, E., & Meara, J. G. (2019). Global surgery and the sustainable development goals. Journal of British Surgery, 106(2), 44-52.

Introduction

The decision-making process in multinational financial structures is complex and multifaceted, including a number of steps and operations. The questions about what stages the decision-making process should include are rather controversial and solved differently according to the specific style of governance and the scope of the organization. Being one of the biggest and the oldest financial conglomerates in the world, Barclays devotes many efforts to the development of its decision-making strategy. While Barclays official documents do not define the steps that coincide with the academic framework of the decision-making process, the banks guidelines in this field seem progressive and aimed at its smooth functioning.

The Barclays Lens decision-making framework

The core of Barclays strategy lies in the aspiration to remain the leading Go-To bank, the place where interests of all customers and stakeholders are taken into account and satisfied (Annual Report 2014 4). Within this framework, the issue of streamlined and effective decision-making process becomes crucial. For that aim, in 2013 the company reconsidered its purposes and values and established the Barclays Lens  the assessment tool within the Barclays Way framework that should be used by everyone when making a decision at any level.

The Barclays Lens is not the description of steps of the decision-making process but a set of rational guidelines that help to identify whether a decision is being made in the companys spirit. This tool includes five questions: is the bank making a direct or indirect profit from delivering services to the customer; is the bank clear and transparent in its communication with the customers and stakeholders; is the created value a long-term one; is the created value beneficial for the bank, its customers and the society; is the decision right and moral and does it correspond with the banks values and purposes (The Barclays Way 18).

Risk management decision-making process

A better understanding of how decisions are made in Barclays can be seen in its risk management activities. The Enterprise Risk Management Framework provides three steps the management should follow. These steps are: Evaluate (identification and assessment of existing and potential risks), Respond (ensuring that risks are kept within appetite (Annual Report 2014 44); at this stage the activity can be either stopped because of the risk or continued with the risk eliminated or passed to another party) and Monitor (tracking the progress after taking required measures) (Annual Report 2014 44). Among the key risks during 2014, the reputation risk was the most notable one. According to the Financial Control Authority, Barclays Bank was the most complained bank in 2014; the bank paid 38 million pounds of penalty to its clients (Bachelor par. 3).

The problem of hierarchy

While the principles and philosophy of decision-making are rather up-to-date, the banks structure often creates complications for their implementation. For example, in the case of the abovementioned risk management process, the system of decision-making is quite hierarchical. The risk has to pass the three lines of defence represented by a number of structures and committees at different levels (Annual Report 2014 46). Barclays chairman John McFarlane noted that the nature of the decision-making processes in the company&are actually quite cumbersome and very often it is impossible to act quickly because there is only one person in the room that is accountable for the decision (Wallace par. 15).

Conclusion

Thus, it can be seen that Barclays Bank has a clear and progressive vision of the decision-making process, with risk management being the most elaborate one. To transform this vision into real results, the company should improve its organizational structure and make it less hierarchical.

Works Cited

Annual Report 2014 2015. Web.

Bachelor, Lisa. Barclays is the Most Complained about Bank  FCA. 2014. Web.

The Barclays Way 2014. Web.

Wallace, Tim. Barclays Profits Climb as Investment Bank Makes Surprise Lurch to Health. 2015. Web.

In Japan, the supply of money is mainly controlled by the Bank of Japan with the help of monetary policy that is focused on inflation and interest rates. Still, during the past two decades when interest rates were extremely low, unconventional monetary policies were implemented in order to improve the situation. Japan was among the first developed countries that made such a step. And even though the effect of these multidimensional policies on business remains uncovered, they proved to stabilize the financial system. With the help of these policies, the Bank of Japan wanted to cope with postponed deflation. As a result, its independence was challenged because they were mainly oriented on inflation but not deflation¹.

The Bank of Japan wanted to cope with domestic deflation that affected the country greatly. For this purpose, it introduced quantitative easing (QE) on 19 March 2001². Due to the policy, commercial banks faced excess liquidity that reduced the possibility of its shortage. In four years, the balance of accounts was expected to reach 35¥ trillion. Japan believed that it was possible to make the consumer price index stable soon but the country exited from QE only two years later even though it was not initially considered to be so long-lasting.

The policy stimulated the economy greatly but had almost no influence on deflation³. The process of restoring the markets took more than three months. Several years later other countries, such as the US, made a decision to implement QE and followed Japans example.

The beginning of the 21^st century did not bring many positive economic changes for Japan. On the contrary, the currency of the country rose rapidly so that foreign exchange intervention had to be implemented soon after QE. It was developed by the Ministry of Finance in 2003. With this policy, the country wanted to reduce the value of the yen, which was likely to affect the competitiveness of Japanese exports negatively. In less than a year, this intervention amounted to more than 17¥ trillion.

Experts in the sphere considered this foreign exchange intervention to be successful, as the currency could have risen much higher without it. Still, the effects were only temporary and did not allow Japan to restore stability⁴. According to the media, this intervention was considered to be unsterilized. However, this claim was argued by professionals, including Ito⁵, as the Ministry of Finance controlled the dollar purchases. In fact, they did not differ much because of the near-zero short-term interest rates and their impact on the economy⁶.

Equity market intervention was implemented this year. The yen is rising currently and Japan finds it rather complicated to weaken it. Still, this should be maintained because the ability to purchase the Exchange Traded Funds is affected. The equity market intervention was expected to assist in this situation, but no substantial changes are noticed yet. It is claimed that the Bank of Japan will reconsider the situation soon and will allow a good selling opportunity⁷.

Japans interest rates were rather low for a long time, and the country did not seem to be willing to change this situation and until 2010 it mainly remained on the same level close to zero. However, that year, the bank made a decision to reduce its policy interest rate. Being already low (0.1%), it was cut to 0%. Such action was expected to assist in avoiding a recession. Being a developed country, Japan was concerned about its slow growth and considered various ways of coping with this issue.

Still, as the rate was already low, it could not make much effect on the situation. Regardless of this fact, the Bank of Japan treated it as a trigger for continuous attempts to affect the economy and stimulate it⁸.

Negative interest rates were introduced on January 29, 2016⁹. The policy is considered to be a radical plan that was initially treated as a forlorn attempt to improve the economic condition of the country by financial markets. Experts claim that such monetary interventions have an immense influence only when they are implemented for the first time that is why the situation is not likely to alter much currently¹⁰. In the framework of a new policy, the banks that deal with additional reserves will be responsible only for 0.1%. In this way, the Bank of Japan is expecting banks and savers to fund businesses and improve the current economic situation.

The effect observed recently showed that the yen was down for some time, but markets failed to sense substantial changes. However, it is believed that this policy can be a trigger for the markets to make a step forward while banks may face profit reduction for about 10%. As banks in Japan mainly depend on deposits, they can hardly expect the same outcomes other countries had. Analyses revealed that organizations should not expect more than 0.2¥ trillion from borrowing, which is a rather small amount of money. Still, the government should save more than 1¥ trillion by dint of negative interest rates policy implementation.

Bibliography

Bank of Japan cuts interest rates to zero. ihs.com. Web.

Bank of Japan launches negative interest rates. The Guardian. Web.

Cavalo, Elisabetta. A brief history of quantitative easing. Emarketmogul. Web.

Ito, Takatoshi. Is foreign exchange intervention effective? The Japanese experiences in the 1990s. NBER Working Paper 1, no. 8914 (2002): 2.

Okina, Kunio, and Shigenori Shiratsuka. The Illusion of Unsterilized Intervention. frbsf. Web.

Sano, Hideyuki, and Leika Kihara. BOJ launches negative rates, already dubbed a failure by markets. reuters. Web.

Shirakawa, Masaaki. One year under quantitative easing. Imes. Web.

Spiegel, Mark. Japanese foreign exchange intervention. frbsf. Web.

Stanley, Morgan. Time to Sell USD to JPY exchange rate pairing. eFXNews. Web.

Takahashi, Wataru. Japanese monetary policy: Experience from the lost decades. International Journal of Business 18, no. 4 (2013): 227.

Footnotes

1. Wataru Takahashi, Japanese monetary policy: Experience from the lost decades, International Journal of Business 18, no. 4 (2013): 227.
2. Masaaki Shirakawa, One year under quantitative easing, Imes. Web.
3. Elisabetta Cavalo, A brief history of quantitative easing, Emarketmogul. Web.
4. Mark Spiegel, Japanese foreign exchange intervention, frbsf. Web.
5. Takatoshi Ito, Is foreign exchange intervention effective? The Japanese experiences in the 1990s, NBER Working Paper 1, no. 8914 (2002): 2.
6. Kunio Okina and Shigenori Shiratsuka, The Illusion of Unsterilized Intervention, frbsf. Web.
7. Morgan Stanley, Time to Sell USD to JPY exchange rate pairing, eFXNews. Web.
8. Bank of Japan cuts interest rates to zero, ihs. Web.
9. Hideyuki Sano and Leika Kihara, BOJ launches negative rates, already dubbed a failure by markets, reuters. Web.
10. Bank of Japan launches negative interest rates, The Guardian. Web.

Financial crisis 2008 is a critical debate today due to its significant effects on the economy. Most importantly is the fact that there exists a close connection between financial crises and liquidity of banks. The study will demonstrate that before the crises the banking sector experienced an unusual positive creation of liquidity which was contrary to crises that affected marketing institutions in the sense in which they recorded abnormal negative trend in creation of liquidity. The purpose of this study is the assess the extent to which financial crisis in the United States of America contributed to the liquidity crash in the (MBBGs) Major British banking group.

Financial Crises 2008

In which extent did financial crisis in the United States of America contribute to the liquidity crash in the (MBBGs) Major British banking group?

In 2007, there emerged uncontrolled market rise on advancement of loans for subprime mortgage in the United States. It is held that most sub-prime loans did not fulfill the standard principles for quality credit procedures, for instance, historical background of the borrower in terms of ability to repay the loan and analysis of his income et cetera (Edey, 2009).

Further research indicates that by September 2008 the fall of Lehmans Brothers aggravated the crises. This led most creditors to incur serious losses (Reinhart, 2003). Moreover, financial institutions in Europe and US destabilized as a result of rapid nationalization of the American International Group (AIG). This situation also led to price instability considering the fluctuations (Edey, 2009). As a remedy the government restricted lending processes in banks and financial institutions; suffice to mention that the gravity of the crisis increased hence spread to other parts of the world.

So, even if there is gap in research on how financial crises of 2008 led to liquidity crash of MBBGs still the study can arrive at such conclusions based on the principle of contagion effect. This may be demonstrated in figure 1 below:

The researcher will use two cases as follows:

1. Fall of Lehman Brothers
2. Subprime Loans

Assumption: The two phenomena resulted to liquidity crash within banking institutions in the United States

Just to reiterate the yellow pattern represents effects of liquidity crash in the two phenomena which in turn spread to other parts of the world or institutions. Therefore, the yellow pattern appears again in MBBGs showing that the risks of liquidity crash due to the fall of Lehman brothers or sub-prime mortgage extend to it.

The demonstration above is to cover research gaps mentioned earlier in that there lacks sufficient literature on how financial crises might have affected Major British banking group. Therefore, the researcher has developed a conceptual framework that may be used as an analytical approach to understand the proposed topic. However, the next few paragraphs will look at other literature resources and subsequently provide another analytical approach.

Research has shown that United States succumbed to several financial crises. In most cases, such crises were occasioned by existent liquidity provision deriving from the banking sector as well as financial markets (Acharya, Shin, and Yorulmaze, 2007). As the reader may be aware the crisis associated with subprime lending led to the annihilation of liquidity in the banking sector thus reducing their capacity to advance credit to individuals, institutions or the depression of loan securitization (Berger & Bouwman, 2009). Theory of financial intermediation asserts that liquidity crises are the main goals for existence of banks. A cross section of research studies have argued that banks achieve liquidity when they finance illiquid assets, for instance, loans advanced to businesses in possession of liquid liabilities (transaction deposits) (Bryant, 1980; Diamond and Dybvig, 1983; Holmstrom and Tirole, 1998, Kashyap, Rajan, and Stein, 2002).

It is worth mentioning that liquidity creation increases fragility of banks not to mention susceptibility to runs (Berger & Bouwman, 2009). In the course of it, runs translate to crises through contagion effects. Other effects emerge if financial crises are the cause of liquidity creation. In this study it is vital to note that an exploration of the relationship between financial crises vis a vis creation of bank liquidity may pose major economic insights which may be used to shape financial policy in the future.

In the past research has paid attention to issues of contagion. It has been held that a minor liquidity shock may lead to contagion effect across the economy (Allen and Gale 2000). Other researchers have assessed the factors which influence financial crises as well as their policy implications (Lorenzoni, 2008). Last but not least, other works have examined the impact of financial crises towards the real sector. Research shows that prior to the crisis creation of liquidity shifted from a negative abnormal value to a positive abnormal value (Berger & Bouwman, 2009). However, when the crisis took place creation of liquidity dropped significantly. But then after the crisis, liquidity creation began having a positive trend (Berger & Bouwman, 2009).

Discussion and Conclusion

As can be seen from the findings above there seems to be a correlation between financial crisis and creation of liquidity. Essentially, it confirms as a matter of principle that financial crisis lead to a downward creation of liquidity in the banking sector and that a stable and growing economy points towards positivity of the same. Therefore, the reader can anticipate what would be the expected outcome for a study which examines the effects of financial crisis in the United States in relation to liquidity crash in the Major British banking group. Well at this juncture the researcher cannot provide valid conclusions as there needs to be more empirical verifications and data quantification. However, through insights of the above findings and boosting the thought with the trend of financial crises (see figure 1) the following may be asserted.

It can be argued that the upswing trend indicates the recovery mode of the economy or what the researcher would refer to as decrease of financial crisis. At this point there would be an upward trend of liquidity creation. On the contrary, downswing trend represents the movement for increased financial crisis thus a downward trend in creation of liquidity.

That said the following proposition hold:

Proposition 1: An increase on financial crisis in the United States of America caused liquidity crash in the (MBBGs) Major British banking group.

Or

Proposition 1A: Financial crises in the United States caused a downward trend to liquidity creation in Major British banking group

Proposition 1B: Decreased financial crises in the United States caused an upward trend to liquidity creation in Major British banking group.

References

Acharya V. et al. (2007). Fire sales, foreign entry and bank liquidity, CEPR Discussion Paper 6309

Allen F. and Gale, D., (2000). Financial contagion. Journal of Political Economy, 108: 1-33.

Berger A. & Bouwman C. (2009). Financial Crises and Bank Liquidity Creation. Journal of Financial Intermediation. Web.

Edey, M. (2009). The Global Financial Crisis and Its Effects. Economic Papers, Vol.28, No.3, pp.186-195

Holmstrom B. and Jean T., (1998). Public and private supply of liquidity. Journal of Political Economy 106:1-40.

Lorenzoni G. (2008). Inefficient credit booms. Review of Economic Studies 75: 809-833.

Reinhart C. and Rogoff K. (2008), Banking Crises: An Equal Opportunity Menace. NBER Working Paper No.14587, December