For the most part of the money created in the economy is through the help of bank as bank deposits. Banks produce new money at any time they make loans. It is estimated that 97% of the money is created in the modern economy with the help of bank whereas the government creates a mere 3%. The money that is created by bank is not the paper money that carries the symbol of government owned by the bank of England (Gallent, Durrant and May 2017). Electronic deposit money reflects on the display when an individual checks the balance at the ATM. Currently money or bank deposits makes up around 97% of the most part of currency in the economy. Merely 3% of the money is created in the traditional fashion in the form of cash, which an individual can touch.
Bank can create money with the help of accounting, which they use at the time of making loans. The money that is reflected at the time of checking the account balance is just the bookkeeping entries in the central processing unit of bank. These numbers represents the legal responsibility of an individual bank to the person (McLeay Radia and Thomas 2014). By creating such kind of electronic IOUs, banks efficiently produce an alternative for money. With every new loan made by bank creates money. Commercial banks create money through deposits or by creation of new loans. When a bank creates loan, for instance an individual takes out the mortgage loans to purchase a house, it is not done by giving them thousands of pounds worth of banknotes. As an alternative, it credits their bank account by providing them with thousands pounds of bank notes. During that moment, a new money is created. Lending also creates money through the help of wider currency determination at the aggregate level.
As stated under the Money in the contemporary economy broad money represents the evaluation of the entire sum of money that is held by the household and organizations in the financial system (Wray 2015). Large amount of money is generally made up of the bank deposits, which is necessary IOU from the commercial bank to households and businesses in the economy. Broad money is generally made up of deposits, which is generally IOU from the commercial bank to the households and companies, and currency, which is largely created from the IOUs central bank. During normal time’s central banks does not fix the amount of money in the movement nor is the central bank money multiplied up in more amounts of loans and deposits. Banks are restricted for loan, which they can lend if they want to stay profitable under the competitive banking system. Prudential regulations act in the form of constraint on the banking activities so that it can uphold the flexibility of the monetary system.
The household and the companies that obtain the currency created by the fresh lending might take the action that create an impact by the lending that create an impact on the stocks of the money and they might rapidly demolish the currency by using it to pay back the current debt. Monetary policies act in the form of creation of creation of money in the economy (Werner 2014). The bank of England intends to assure that the sum of wealth created in the financial system is reliable and steady inflation. In usual times, the bank of England applies the financial policies by setting up the rate of interest at the effective lower bound. Money creation and spending in the economy might yet be very low which is inconsistent with the central bank fiscal policy.
When the financial sector was blamed for large portion of the global crisis some economist pointed out that few financial corporation are more influential than the central banks. On the other hand, MacKenzie and Spears(2014), has stated the issues of lending the rating agencies and the secretarial firms that enjoy an oligopolistic authority over the marketplace. Studies have pointed out the some of the large global banks enjoy a noteworthy influence over the political economy in numerous nations. Investment banks have been regularly found to be dealing in the monetary flows of suspect legality in one country even though there are not many substances involved where both the nations are involved. Investment banks have the occasion and the enticement to perform procedure consisting of tax avoidance. Due to such operations, investment banks continuous to enjoy major influence over the political economy in the most of the countries. Under the current surroundings of international monetary markets, few large international fiscal multinationals are larger and are further powerful than few of the central banks are.
Referring to policy Pearl and Rosenbaum(2013) stated that the available evidences represents that the fiscal contributions to the political activities from the monetary division in numerous effected nations from the financial crisis has augmented drastically in the current years. In addition to this, a large number of international financial investment banks seem to be in the position so that it can influence not only the political influence governance but also the corporate governance to meet their own interest. Economist such as Alvesson and Robertson(2016) did not specifically name any country however; their remarks largely appear to be targeted at the western nations. Commenting on the issues relating to society, economic policies and monetary sector economist have stated their concentration on the international financial power in some of the companies with close mutual relations has significant possible to undermine the competitive forces. The leading rating agencies, accounting organizations and some of the commercial news agencies have constantly dealt with each other that tends to have strengthened the use of their oligopolistic authority on the markets.
Furthermore, investment banks play an important role in large businesses such as companies and government agencies to raise money all the way through the capital markets. When an organizations aspires to have a loan of money by issuing bond investment help in matching the business with the requirement of investors Grullon, Underwood and Weston(2014). An additional key function of the investment banks is that it trades in wide range of monetary instrument including the shares, government and corporate bonds, foreign exchange and commodities, which includes precious metals, and associated derivative instruments. Investment banks also introduces risk to the monetary system, however with the dealing of assets it can be susceptible to the breakdown of one solitary firm. Furthermore, the web of the interconnections amid the investment banks and other monetary institutions can act as the means for the transmission of the losses with the help of the system (Schoenmaker and Goodhart 2016). The difficulty involved in some of their activities also adds largely to the risk of the international monetary system.
A large part of these risks are crystallised at the time of the current international monetary crisis when a number of major international investment banks were taken over so that it can bail out by using the community funds or affirmed bankrupt following the financial misery. They stay pertinent to the monetary constancy in the United Kingdom because large number of the largest investment banks have their operations in the London (Stanleyet al. 2014). A large number of regulations have been undertaken so that it can be globally implemented ever since the onset of the international financial crisis to rectify their fault lines which contributes to build a safer and more elastic monetary system to serve the real economy. In addition to this, the bank of England plays a vital role with the other regulatory bodies so that it completely implement the measures and assure that the activities of investment banking are coordinated with the safe and sound policies.
In the era of contemporary mixed economies both the government and the large companies is dependent on the investment banks so that it can raise their funds. Historically, investment banking matches with the selling securities with that of the investors. Investment bank are rewarded with the intermediaries or the intermediaries Rosenbaum and Pearl(2013). Businesses starts to grow more quickly by matching producers with the savers and financial development becomes more efficient. In global platforms investment banks work with the commercial banks so that it can help in determining the prevailing rate of interest in the market (Hoenig and Morris 2014). Even though there are different, rate of interest for commercial and investment products in the international market all the interest rate influence each other.
The market rates of interest additionally determine the profitability of saving and borrowing as this helps in coordinating the use of resources across time (Fohlin 2014). A large portion of the economic research based on regulations is financed by the investment bank. However, the leading marketplace shares of some of the brands in the finance industry in combination with the characteristic externalities of finance so that it can make difference to the procedure and outcomes.
Five years following the global financial crisis, several financial sectors are finding it difficult to produce sustainable organic expansion and coming back to pre-crisis income levels. A large number of rising trends along with the digital technology and speedy changes in the preference of the customers threatens the financial sector (Galleet al. 2015). The financial sector restricts themselves to the distributing products and services with the help of physical channels especially branches. Considering the extent of such kind of interruptions, the analysis represents that a full service financial institution could lose around 35 percent of their marketplace share by 2020. As demanding as the present operating atmosphere, it is believed that the financial sector is the ground for opportunity.
The banking and the financial sector has to play a very important role to achieve the continuous economic growth. The policy makers in the financial sector are necessarily required to embark on the creative strategy for providing service to all the sectors of the economy (Marti and Scherer 2016). Obtaining a low cost finance is significant for the monetary sector in order to pass on the benefit to the borrowers. This will help in strengthening the currency flow of the borrowers during their long term. In most of the developed countries, very low rate of interest activated new business activities from the public who drafted away from the custom of savings. Lowering of borrowing rates ensured that the survival opportunities for the business enterprise in long run. This business will be able to endure several financial turbulences over several decades and would have a vigorous cash flow. Irrespective of how the financial institutions undergo the journey of sustainable competitive advantage, they must restructure their ships for meeting success.
To capture the growing opportunities of convergent disruptive forces traditional financial institutions should shift their operational philosophy from a product-oriented association to a client-based association. Shifting into the customer-based approach will provide the opportunity of engaging with the customers anywhere and anytime on their terms (Lang 2016). More significantly, financial institutions must embrace and incorporate new expertise, channels and strategies.
From the technological aspects to consumer expectations the markets have transformed considerably in five years ever since the international monetary crisis and would carry on to change in the coming years. To socially do well under such surroundings, financial institutions must enhance in their presence business models or adopt the new trade models (Baranenkoet al. 2014). Customers across the generations are looking for both richer and more personalized digital experience. To be successful financial sector should undergo a business evolution towards new models in the areas of full service banks, the niche digital provider and the big box bank. Convergent disturbance is altering the financial sector and present institutions should discover the future true north.
A large number of the powerful financial sector will look to retain the business model under different degrees of success. On the other hand, other banks will be turning into complete digital full service banks or niche digital providers. This financial sector commercial model development will be based on actions and not on absolute since every financial institution will be having their own course ahead. The rationally and inclination for the specific business models will differ by financial institutions and even by business units at the same financial sector (Subramaniamet al. 2015). Financial institutions must commence the construction of building groundwork for future years. Success represents an opportunity for the financial sector to proactively invest in the business and becoming customer friendly by taking on banking in the digital era.
Financial sector what they currently is not what they will be in future as introducing the new three models namely, the niche digital provider, the digital complete service bank and the big box banks will create a huge impact on the conventional full service financial institutions. Financial sector currently have the very best opportunities of protecting and building their business (Shatkin 2016). They can either develop the current financial trade models to be more competitive or discover three new models to achieve future success. The first new model is considered as the niche digital provider that is extremely nimble. These financial sectors have elastic transportation banking social media and mobility banking. These are most likely to result from new entrant or inventive joint ventures amid the conventional players and technology providers. Whether rooted in current institutions or new entrant digital full service banks will grow as the truly digital customer experience.
The financial sector will offer a wide range of merchandise and next-generations digital buyer experience without having kind of reliance on the physical distribution channels. Finally, the big box financial institutions will be joining the 2020 banking landscape that will offer commodity products to the customers of mass-market (Scott 2013). The customer appeal of the financial sector lies in the wide range of product offerings and value pricing. Each of the financial sectors banking business possesses the potential to be highly disruptive. The actual questions that puts forward to the conventional full service banks is that whether they must alter their path or should they select an wholly new one. Either way the opportunity abounds for the financial sector.
Current indulgence and experience models are tone deaf:
Banks are better at running their business and the customer transaction fuels the business requirements. Unfortunately in the current era of business, this is no longer enough. According to the report the CX benchmark and the extent to which banks make their customer feel valuable represented a mark difference between the industrial benchmark and the extent to which banks feel comfortable in rewarding the loyalty of their customers. Several financial institutions have CXinitiative underway and there is a clear mandate to get beneath and deal with the gap that exacerbates the revenue churn along with the lack of enrichment of other banks offerings (Hacio?lu and Dinçer 2017).
The irony that is associated with the financial sector is that banks have the extraordinary amount of data and the opportunity to close down the gap. However, the challenge lies in converting the data into the personalized experience. The behaviour of the customer is placing additional pressure on the financial sector business model (Saebi, Lien and Foss 2016). The changing dynamic of customer presents an immediate attack on most of financial business model. For some of the financial sector it represents an external threat. Financial sector have relied on the lifetime loyalty factor by assuming that an initial savings account as a young adult will predict the future of mortgage loans, home equity and service of investment. This kind of inferred relationship is no longer alive and this puts enormous amount of pressure on the business model that depend on keeping the financial sector in relationship.
Banks are faced with the deteriorating relationship equity, which threatens growth. However the answers are not anymore based on the human touch points as customers are highly seeking digital engagements (Scott 2013). Instead of leveraging the investments in the system of record and system of insight banks should implementing intelligent predictive service that are able to deliver just in time value to the customers. Financial institutions are considered as cross wood where the customer behaviour and anticipations are threatening the significance andthe productivity of financial sector current business and economic model. Technology has helped to empower the customers and disruptions threaten the operations of the financial sector. Technologies can help the banks to address such kinds of threats in order to reshape and rebuild the relationships with the customers to create sustainable growth.
The financial sector is one of the first to be targeted by the cyber crime as there have been significant amount of potential financial gains to be attained from subverting the computerised processes and corporate controls in banks. Survey suggest that cyber crime is still considered as one of the second most common type of economic crime reported by the respondent of the financial sector. Similarly, 41 percent of the financial sector respondent believe that would experience cybercrime in the future years (Valentova and Callens 2017). The financial sector respondent have perceived the threat of cyber crime in comparison to the other financial industries. Most evidently, financial sector organizations have stated that cyber crime is turning out to be a greater threat than before andthere are not many that believe it will hamper the business performance.
In UK the Bank of England has clearly stated that the cybercrime pose major threat to the financial sector along with other financial sector regulators in the UK. There are certain cyber threats that perform ebb and flow for example the Middle Easterncyber-attacks targets a large number of US banks that appears to have receded. In some countries the scams of phishing seems to have targeted the personal computers of bank employees through virus, or using fake pop-up windows and email as the legitimate internet banking interfaces to deceive the customers in providing the personal information.
Reference List:
Alvesson, M. and Robertson, M., 2016. Money matters: Teflonic identity manoeuvring in the investment banking sector. Organization Studies, 37(1), pp.7-34.
Baranenko, S.P., Dudin, M.N., Lyasnikov, N.V. and Busygin, K.D., 2014. Use of environmental approach to innovation-oriented development of industrial enterprises.
Gallent, N., Durrant, D. and May, N., 2017Fohlin, C., 2014. A Brief History of Investment Banking from Medieval Times to the Present.
Galle, W., De Troyer, F. and De Temmerman, N., 2015. The strengths, weaknesses, opportunities and threats of Open and Transformable Building related to its financial feasibility.
Grullon, G., Underwood, S. and Weston, J.P., 2014. Comovement and investment banking networks. Journal of Financial Economics, 113(1), pp.73-89.
Hacio?lu, Ü. and Dinçer, H. eds., 2017. Global Financial Crisis and Its Ramifications on Capital Markets: Opportunities and Threats in Volatile Economic Conditions. Springer.
Hoberg, G., Phillips, G. and Prabhala, N., 2014. Product market threats, payouts, and financial flexibility. The Journal of Finance, 69(1), pp.293-324.
Hoenig, T.M. and Morris, C.S., 2014. Restructuring the banking system to improve safety and soundness. In The Social Value of the Financial Sector: Too Big to Fail or Just Too Big? (pp. 401-425).
Jang, W.S., Lee, D.E. and Choi, J.H., 2014. Identifying the strengths, weaknesses, opportunities and threats to TOT and divestiture business models in China’s water market. International Journal of Project Management, 32(2), pp.298-314.
Lang, L.C., 2016. Opportunities and Threats of Social Media in the Accounting Sector. Case: Steuerberatung Lang.
MacKenzie, D. and Spears, T., 2014. ‘The formula that killed Wall Street’: The Gaussian copula and modelling practices in investment banking. Social Studies of Science, 44(3), pp.393-417.
Marti, E. and Scherer, A.G., 2016. Financial regulation and social welfare: The critical contribution of management theory. Academy of Management Review, 41(2), pp.298-323.
Marti, E., and Scherer, A. G. 2016. Financial regulation and social welfare: The critical contribution of management theory. Academy of Management Review, 41(2), 298-323.
McLeay, M. and Radia, A., 2014. R. Thomas (2014a), Money creation in the modern economy: an introduction. Bank of England Quarterly Bulletin, 54(1).
McLeay, M., Radia, A. and Thomas, R., 2014. Money creation in the modern economy.
Pearl, J. and Rosenbaum, J., 2013. Investment banking: valuation, leveraged buyouts, and mergers and acquisitions. John Wiley & Sons.
Rosenbaum, J. and Pearl, J., 2013. Investment Banking Focus Notes. John Wiley & Sons.
Saebi, T., Lien, L. and Foss, N.J., 2016. What drives business model adaptation? The impact of opportunities, threats and strategic orientation. Long Range Planning.
Schoenmaker, D. and Goodhart, C., 2016. The United States dominates global investment banking: does it matter for Europe? Bruegel Working Paper ISSUE 2016/06 March 2016.
Scott, B., 2013. The Heretic’s Guide to Global Finance. London: Pluto Press.
Shatkin, G., 2016. The real estate turn in policy and planning: Land monetization and the political economy of peri-urbanization in Asia. Cities, 53, pp.141-149.
Stanley, L., MacKenzie Davey, K. and Symon, G., 2014. Exploring media construction of investment banking as dirty work. Qualitative Research in Organizations and Management: An International Journal, 9(3), pp.270-287.
Subramaniam, N., Wahyuni, D., Cooper, B.J., Leung, P. and Wines, G., 2015. Integration of carbon risks and opportunities in enterprise risk management systems: evidence from Australian firms. Journal of Cleaner Production, 96, pp.407-417.
Valentova, M. and Callens, M.S., 2017. Did the escalation of the financial crisis of 2008 affect the perception of immigration-related threats? A natural experiment. Journal of Ethnic and Migration Studies, pp.1-23.
Werner, R.A., 2014. How do banks create money, and why can other firms not do the same? An explanation for the coexistence of lending and deposit-taking. International Review of Financial Analysis, 36, pp.71-77.
Wray, L.R., 2015. Modern money theory: A primer on macroeconomics for sovereign monetary systems. Springer.
Essay Writing Service Features
Our Experience
No matter how complex your assignment is, we can find the right professional for your specific task. Contact Essay is an essay writing company that hires only the smartest minds to help you with your projects. Our expertise allows us to provide students with high-quality academic writing, editing & proofreading services.
Free Features
Free revision policy
$10Free bibliography & reference
$8Free title page
$8Free formatting
$8How Our Essay Writing Service Works
First, you will need to complete an order form. It's not difficult but, in case there is anything you find not to be clear, you may always call us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.
Complete the order form
Once we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.
Writer’s assignment
As soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.
Completing the order and download