Importance of Banks to Uk Economy

Why are banks so important to the UK economy?

Within this report we will be analysing and accessing how banks that the public know of today, how they can affect our life. Furthermore how they can influence government to make bold moves to stop banks from failing. In addition to this we shall be mentioning how banks play and big part in business and peoples general day to day life. Paying close attention to the banks role within the economic and gross domestic product of the country

Banking in the 1980s

Banking implies that the financial services industry is subject by the banks. Though, looking at the history of the banking industry there had been a time where banking was straightforward and consistent with the services that it provided.

Banking can be split in to two different categories, which are retail banking and investment banking.

Retail banking

Retail banking is what we are familiar with on the high street. These are banks with lots of branches, and are mainly for people who have small amounts of money in their account and who borrow small amounts of money.

British retail banking up to the 1980s was regulated; the amount banks could lend was controlled by the government via the Bank of England.

There were a small number of banks (oligopoly) and there was very little reason to compete with each other due to the same market condition. Therefore sales account was limited /loans. The service in 1980s was called supply led.

Retail banking could create credit for example when banks lend money out to a person to buy a car for example, the money will end up in the bank in the end anyway. The buyer will transfer money to the seller which will most likely end up in a bank. If this occurs across all banks then they have the guarantee that even if they have leant money out, they will roughly have the same amount of money in their vaults.

Some banks make a profit by lending money out as there is an incentive to make as much credit as possible therefore...