Comparative Analysis of the Growth of UK Retail Banking

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Table of Contents

CHAPTER 2: LITERATURE REVIEW1

Banking industry in United Kingdom1

Retail Banking2

Retail Banking in UK3

HSBC in UK4

Driving Factors of Retail Banking in the UK6

The Impact of Reforms on Financial Sector Performance14

Financial Deepening15

Macroeconomic Management16

Interest Rates and Spreads17

Market Concentration17

REFERENCES19

CHAPTER 2: LITERATURE REVIEW

Banking industry in United Kingdom

A bank is a financial intermediary that offers loans, deposits and payment services to its customers. The traditional role of a bank is to act as a mediator between depositors and borrowers. Banks satisfy the different needs of lenders and borrowers by converting small size, low risk and highly liquid deposits into loans which are large at size, high at risk and highly illiquid. UK banking industry and financial institutions has undergone considerable change over the last few years. Banking industry in UK which is mainly motivated by internal deregulation as well as other factors has changed supply and demand features of financial services industry. UK has a small number of banks as compare to other European countries. Authorized banking institutes in UK have seen a dramatic fall from the year 1985(Uppal, 2008. 45-61).

According to Chandra (2006), retail banking includes different activities like operating transactional account, clearing check issued by customers on the bank and providing debit or credit for checks deposited by customers. In recent years, traditional business of banks for example, making long term loans and issuing short term deposits has declined. Traditionally, the main business of banks consists of receiving deposits from customers and providing loans to borrowers. Most of the income of retail banks is generated from lending activities. Modern banking business includes the concept of retail banking as well as various financial service activities like securities operations, insurance, pensions, leasing amongst others.

Studies carried out by Riggins (1999) show that retail banking in UK refers to a large number of transactions, low value of transaction, deposits received from individuals and small businesses and loans are made to the same groups. Retail banking is different from wholesale banking, where transactions are small in numbers, but large in value. Customers of wholesale banking are mainly medium or large companies and large organizations. In reality it is difficult to differentiate between retail banking and wholesale banking in the UK. It is because, many of the banks operating in the retail market, to some degree also operates in the wholesale market. To operate as a bank and to accept deposits in UK, a firm must obtain permission from Financial Services Authority (FSA). Once a bank is authorized, its depositors get protected under the UK financial compensation scheme.

Retail Banking

As per Davis(1989), retail banking refers to the commercial banks, using modern management concept, relying on high-tech means to individuals, families and small and medium enterprises to provide comprehensive, integrated financial services including deposit, lending, clearing, exchange, investment and wealth management businesses. Retail banking business is not a short one, but many businesses in general. It has a wide range of business areas, both the retail banking business, it can be a new business; ...