UK Commercial Banks

The Banking sector in the United Kingdom has gone through a number of changes in the last few years, after being stable for decades. This has been the result of the credit crunch.

Traditionally the banking sector was dominated by the big four banks, Barclays, HSBC (formerly Midlands, now owned by the Hong Kong based HSBC), and Lloyds. There were also a number of mutually owned building societies, many of whom had demutualised and become banks. The internet and government deregulation meant that many foreign banks had set up a presence in England, mainly aimed at savings accounts.

All of these banks had extensive foreign banking operations, as well as business banking operations and wholesale merchant and investment banking subsidiaries. The Banks were well known for their business lending where Barclays was, and still is, known for Barclays Capital, a merchant banking arm. The full range of retail banking services were offered by all the big English and Scottish banks, including share dealing, private banking and personal loans.

In the early years of the twenty first century the Bank of England printed a large amount of money, which drove interest rates down, particularly on the wholesale money markets. A number of new entrants, who were Scottish, foreign or demutualized building societies, came into the British market borrowing on the short term money markets and offering mortgages to British consumers.

Halifax, previously the country’s largest building society was bought up by the Bank of Scotland, which titled itself “HBOS” and started to aggressively go after the mortgage and savings markets. Northern Rock, which had previously been a cautious and respectable Building Society in the North East of England borrowed an enormous amount of money on the short term money markets and offered these up as some of the most lenient mortgages, allowing 125% of the value of the house to be borrowed and sold mostly over the internet or by phone. Bradford & Bingley, another former building society this time based in Yorkshire, went after the “buy to let” market of amateur landlords on a similar model to Northern Rock. Even Lloyds Bank, which had been renowned for its caution had brought the Cheltenham & Gloucester former building society and used it to sell its savings and mortgages.

This stopped in 2007 with the credit crunch. At first few consumers noticed that the money markets were not lending, and then there was the announcement that the Northern Rock bank needed emergency funding from the government. This started the first bank run in Britain for more than a century and meant that eventually Northern Rock was taken over by the British government.

A few months later Lehman Brothers fell and the short term money market froze. The government learnt that the two big Scotish Banks were about to go bankrupt and were hours away from stopping funds being withdrawn.

The government put money into both operations, getting Lloyds to merge with the Halifax Bank of Scotland group. A number of building societies also got into trouble partly through poor loans but also through the collapse of Icelandic banks, which meant that they had to merge with bigger building societies such as Nationwide Building Society and the Yorkshire Building Society.

Today Banks in Britain have most of the same names on the high street as they’ve had for thirty years, but their owners are different and more concentrated.

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