Credit Crunch Impact in Bank of England

Topics: Monetary policy, Central bank, Inflation Pages: 13 (3792 words) Published: April 14, 2011
3. Using one specific multinational enterprise with which you are familiar, examine the ways in which ‘credit crunch’ has impacted its operations. Evaluate the strategic responses it has made, and might make going forward, to respond to the impacts of the credit crunch on its operations.


This work will focus on the broader economic impact of the crisis in credit markets, which began over three years ago with the downturn in United States (US) sub-prime housing market. While the epicenter has remained in the US, it has already had a major impact on the structure of Bank of England. In the year 2008 we have seen a significant consolidation within the UK banking sector. (George Cooper,2008) Just to illustrate this I will provide few examples; Nothern Rock among the first casualties (BBC news: 7th August 2009), Santander purchasing Alliance & Leicester (The Times: July 15th 2008), Nationwide absorbing two smaller building societies (Daily Telegraph 2nd May 2009), The merger if HBOS and Lloyds TSB (Daily May 17th September 2008)

The ‘rumor’ has also affected all of the Bank’s work; from setting of interest rates, to the scale and structure of the market operations and to joint work with the Financial Services Authority (FSA) and Treasury to deal with institutions under stress and to help design an effective international response to the ‘credit crunch’. For example Bank of England adapted money market operations to provide the liquidity the banking system in whole required. Firstly they allowed banks to increase they reserve balances at the Bank, increasing the size of overall Bank of England provision; second, within that larger total they shifted the balance towards longer-term lending as the terms of market finance have short-ended; third, they widened the collateral they accept for longer-term repos. And finally in April they introduced a special scheme to provide banks with up to three years’ finance for legacy assets to become illiquid. In September 2008 they offer extra sterling liquidity through Open Market Operations and provided US dollar liquidity as part of coordinated action with Federal reserves, ECB, Bank of Japan and Swiss National bank. They have also extended the window in which banks can swap their legacy assets under Special Liquidity Scheme. The governor of Bank of England announced that stabilization of US markets and banks should have a beneficial knock-on effect on wider international markets too. (Aglietta M,Scialom L., 2009)

The Bank of England Analysis and the ‘credit crunch’

Organization analysis and planning focuses on cultivating and maintaining an efficient workforce through the design and structure of an organization, as well as the relationships and behavior of individuals within organizations. Specifically, organizational analysis is concerned with developing models and theories that accurately capture the functioning and development of organizations and that account for the ways in which organizations respond to and bring about changes.

Therefore in working towards its core purposes, the Bank of England is organized into four main operational areas - Monetary Analysis and Statistics, Markets, Financial Stability and Banking Services, supported by a Central Services area.

Monetary Analysis
The Monetary Analysis (MA) divisions are responsible for providing the Bank with the economic analysis it needs to discharge its monetary policy responsibilities. Its economists conduct research and analysis of current and prospective developments in the UK and international economies. The MA divisions produce the Quarterly Bulletin and the Inflation Report, which sets out the Monetary Policy Committee’s assessment of the current monetary and economic situation in the United Kingdom and of the outlook for inflation and growth. Markets

The main functions of the Markets area include: conducting operations in the sterling money markets...

References: George Cooper, The Origin of Financial Crises (2008: London, Harriman House) ISBN 1905641850
BBC news; Timeline: ‘Credit crunch to downturn’; 7th August 2009
Daily Telegraph, ‘Mutuals are no longer as safe as houses’; 2nd May 2009)
Daily Mail, ‘‘HBOS agrees emergency merger with Lloyds TSB after Brown ‘encourages banks to do a deal’ ‘’; 17th September 2008
Aglietta M,Scialom L., 2009, “Permanence and innovation in central banking policy for financial stability”, in Robert Bliss and Georges Kaufman (eds.), Financial Markets and Institutions: 2007-2008, The year of crisis, Palgrave Macmillan.
IMF (2007). “Financial Market Turbulence Causes, Consequences and Policies”, Global Financial Stability Report, October.
Bank of International Settlements (2005). “The role of ratings in structured finance: issues and implications”, Report submitted by a Working Group established by the Committee on the Global Financial System, January.

Financial Stability Forum (FSF) (2007)
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