Crisis in the UK Banking Sector - Thesis Example

Download file to see previous pages The paper "Crisis in the UK Banking Sector" is a perfect example of a macro and microeconomics thesis. In the aftermath of the global financial crisis that began in 2008, banks around the world have received the brunt of the blame for the crisis. Some politicians, financial leaders, and certainly many in the general public have blamed banks for the crisis because of the concern that they took on too much risk to the detriment of customers and countries they were supposed to serve (Jawadi, 2010,p. 1019). Liang, Xu & Jiraporn, 2013, p.2953). The perception has grown that the corporate governance of banks was so relaxed in the years leading up to the beginning of the crisis that protecting stakeholders became secondary to attempting to generate as much revenue and profits as possible (Adams, 2012, pp. 3-4; Kirkpatrick, 2008, p. 2). Consequently, many governments around the world have adopted a wide range of measures in a bid to mitigate the effects of the crisis and avert possible occurrences of a similar financial crisis in future (Stolz & Wedow, 2013, p.81-82). A considerable number of these measures have been directed towards improving corporate governance in banks (Liang et al, 2013, p. 2935).

In response to the tumultuous effects of the global financial crisis in the United Kingdom, in 2009 Prime Minister Gordon Brown commissioned Sir David Walker to conduct a review of the corporate governance of banks in the United Kingdom to determine the problems related to bank corporate governance, as well as recommend suggestions for how to improve bank corporate governance in the country (Mullineux, 2011,p.1; Walker 2009, p.9). The Walker Review identified that some of the existing pitfalls of corporate governance in the UK banking sector revolve around, functions and composition of the Board of Directors among other factors. The recommendations that were put forth from the Walker Report included changes to the composition and role of the Board of Directors of banks in the United Kingdom such that they are comprised of a broader range of people from within and outside of the banks they represent, as well as take on a greater risk-management role as opposed to a sole focus on revenue and profit generation (LeBlanc, 2010, pp.20-27; Walker 2009, pp.9-22).

Drawing on Walker’s Review, it is evident that a wide range of issues arises regarding the appropriate role of corporate Boards of Directors in reducing risk while also enhancing performance (Walker 2009, pp.9-22). Over the years, a number of studies have been conducted with the aim of examining the role that corporate governance plays in reducing risks and enhancing performance in banks (Adams & Mehran, 2012; Laeven & Levine 2009; Liang et al, 2013; Pathan & Faff 2013). Although these studies have provided invaluable insight into the role and impact of corporate governance in the banking sector, several research gaps still exist (Liang et al, 2013; Adams & Mehran, 2012).

This chapter seeks to provide a strong theoretical background for the study by critically reviewing various relevant literature and empirical studies that have explored the role of corporate governance in enhancing performance and reducing corporate risk in the banking sector. It particularly focuses on discussing the key findings and perspectives embedded in different kinds of literature and empirical studies. Subsequently, this chapter identifies the existing research gaps in each of the studies reviewed.

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