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284 Vătavu, S.; Pirtea, M.; Vătavu, S. during crisis came from the property-related investments, which included sub-prime mortgages. Lehman tried to get help from the US government or to find a buyer, but investors and trading partners were leaving, although Lehman presented a last minute restructuring plan (Wearden, et al., 2008). Worldwide, the firm had 26,000 employees endangered to loose their job. Its shares fell dramatically in seven months, from $66 in February to $3.65 in September. The dollar lost power to both Euro and Yen and the systems needed to stabilise the markets hence the European Central Bank injected €30 billions and the Bank of England £5 billions. On September 15, Lehman was urged to fill the chapter of the Bankruptcy Code and create a plan to pay its creditors. In six months, Lehman lost $6.7 billions, the assets were continually decreasing, and its debts were more than $600 billions The British Financial Services Authority refused “to import the cancer” even in the possibility of a buyer, like Barclays (Ferguson, 2009). Six months before Lehman collapsed, Bear Stearns faced similar facts, but the Treasury Department intervened. However, the US government saved Bear Stearns not because it was “too big to fail”, but too inter-connected for a sudden bankruptcy, and it had derivatives that worth $9 trillion, while Lehman Brothers had a tenth of that exposure. The BBC business editor Robert Peston, considered the bankruptcy of Lehman the “Wall Street's most extraordinary 24 hours since the late 1920s”. Compared to the solutions adopted by the United States, Britain’s government tried to help the financial institutions as it considered that nationalisation is not a desirable way to work out. In the first quarter of 2009, statistics considered the UK as the first country in the world on bailing out banks (BBC, 2009). At the beginning of 2009, the Royal Bank of Scotland stated the biggest loss in the UK’s corporate history, beyond £28 billions Although 70% of the bank was owned by taxpayers, the huge losses made government consider the nationalisation. For the recovery of RBS, the Treasury decided to apply an insurance strategy, which covers 90% of the losses in investments (Elliott, et al., 2009). In February 2009, RBS declared that shareholders would share £950 millions as bonuses for 2008, depending on the number of employees that need to be fired. However, the UK did not agree on the fact that losses may be rewarded by bonuses (Eaglesham, et al., 2009). Financial Times reported that the RBS board threatens to retire if the bonuses sum is changed, but the authorities were advised by the Treasury to ignore the threat: “the government will never be taken seriously again on financial policy if it caves in to this blackmail”. To repay the government help, RBS had to withdraw £250 billions of its assets in the next four years, sell the insurance business, and dispose of the core business valuing £50 billions (Goff, 2009). Other British banks were endangered due to one of the biggest mistakes done during the recession, which was investing money in the property development when everybody else withdrew from it. This way HBOS, the biggest mortgage lender in the UK, lost £7 billions and faced a confidence crisis, eventually being bought by the Lloyd TSB for £12 billions (Financial Times, 2008).
A Review of Financial Regulations to Avoid the Nationalisation of … 285 5. REGULATIONS TO AVOID THE NATIONALISATION OF LOSSES As explained above, banks losses are due to complex reasons, and authorities must adopt measures to minimize the system problems. The Banking Law Committee recommends surveillance focused on bank solidity, risk and transparency. In case of financial crisis, The Crisis Management Authority should be ready to act and provide efficient coordination between all institutions managing the crisis (Viotti, 2000). Market discipline is vital to the national financial system, and it includes investors’ possibility to monitor actions and influence managers. The Basel Committee on Banking Supervision (1999, pp.17) considered that “market discipline imposes strong incentives on banks to conduct their business in a safe, sound and efficient manner”, and explained that a transparent bank gains more trust from market investors and more help in a secure investing. Market discipline offers information about banks performance, risk profile, risk management, and data which allows entrepreneurs to make well-founded risk-assessments. The risk taken by banks differs. Commercial banks can easily go bankrupt because they weaken when a large number of depositors clear their accounts. The lost summed from investment banks are times bigger as the commercial banks losses. The effects of the systemic risk should be suppressed with “a brake on its carriers and require all products over a certain volume to be traded on an exchange rather than over the counter or, at a minimum, to create a mandatory central clearing house for them” (Butler &Patrick, 2009, pp.71). When banks figures are beyond banks capital requirements, regulations like restricting bonuses and payments should be applied, until proper ratios are achieved. Reestablishing secured ratios may be realized through raising capital or disposing the high risky assets. Regulators should encourage capital use, but with limitation for its use in investments, for example a percentage of profits. Furthermore, banks must discover risky assets and isolate them (Peter, 2009). Financial liberalisation made national banks more dependent on international loans, as they became cheaper; hence, the system weaknesses were duplicated between banks, increasing their vulnerability. The liberalisation process ensures the market freedom whilst interest rates go up, raising the credit cost, and finally, causing an economic crash (Krohn, 2008). To avoid becoming “too big to fail”, all banks should be monitored, and in case of fraud and corruption, they must be vanished as soon as possible. For a better control, authorities should send signals to bankers to make them conscious of the penalties given in case of improper banking behavior. Poor management may lead to wrong decisions such as allowing bank resources exploitation or taking excessive risks for quick profits. The growth rate in banks needs limitation, otherwise bankers will use gambling to get instant earnings. Another way to prevent bank gambling is to offer better choices to invest money in and lower intermediation costs (Hellmann, et al., 2000). When deposit insurance is used for non-monitored banks, the risk is transferred to taxpayers. If a society is not ready to protect itself, in order to save insolvent banks another way than providing a security blanket should be used (Mayes, 2005). The market evaluation is more simple and effective when deposit insurance exists, as the
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Annals of the University of Petroş
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Concerns on Labour Power Selection
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4. CONCLUSIONS Forms of Tax Evasion
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Mitigation of the Crisis Effects in
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Guiding Marks Regarding the Reasoni
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The Influence of the Mining Unions
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Trust in B2B e-Marketplaces 117 of
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Trust in B2B e-Marketplaces 119 in
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The Role of Accounting Information
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Promotion of Employment among Youth
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