econ 3 key theme 2 - Banking and Oligopoly

The breaking of the credit crunch through 2007-2008 and continued problems within the financial sector has led to significant structural change within the banking industry in the UK (and elsewhere) this has thrown up many aspects of theory of the firm that could be explored:

Market Share (OFT 2012)

• Lloyds Group 30% (HBOS takeeover + part nationalised 2008)
• RBS 16% (part nationalised 2008)
• HSBC 14% (Strong emerging market business model)
• Santander 13% (Spanish owned)
• Barclays 12% (attempted takeover of Lehmans 2008 / Diamond in executive pay bonus issues with shareholders 2012)
• 85% - 5 firm concentration ratio - highly concentrated

Key issues

• exit of unsuccessful firms leading to greater control for remaining firms
• bail out of unsuccessful firms (nationalisation v priviatisation) and consideration of moral hazzard - encouraging high risk strategies looking for high short-run profit safe in the knowledge that banks are "too big to fail" thus taxpayers will cover any downside risk
• how or should State owned banks be re-privatised?
• clegg share givaway (bbc june 2011)
• northern rock sold to virgin money (bbc nov 2011)
• ethics of bonus/ dividend culture in State owned banks and indeed the banking sector as a whole "fat cat bankers" and Fred "the Shred" Goodwin (RBS)
• barclays shareholder revolt (bbc april 2012)
• allowing merger and takeover due to unique circircumstances that during normal times may be considered "NOT IN THE CONSUMER INTEREST"
• lloyds approves hbos takeover (bbc nov 2008)
• whats wront with takeover lloyds hbos (telegraph 2008)
• divorce of ownership and control and firms objectives -
• princple agent problems of the public limited company (plc) as a model for ownership and the ways around these issues. 
• Complextity of institutional investors also focused on short run returns through share price or dividend rather than long run sustainable strategies.
• roles of regulators - regulation v deregulation
• FSA - Bank of England separation in 1997 was wise?
• growing complexity of financial innovation makes this a market impossible to regulate?
• separation of retail and investment banking "firewall" Glass Seagal Act from 1930s repealed under Clinton in US allowed recreation of bubble conditions through leverage not seen since the Great Depression.  Should these reglations be put back in place - Frank Dodds Act 2010 recently in US attempt to recreate greater scrutiny over financial markets
• peston discusses issue in UK banking 

Some links to develop awareness:

• economicsonline banks overview + oligopoly overview notes (excellent with video support)
• big banks running an oligopoly (telegraph Jan 2011)
• time to end banking oligopoly (ft may 2012)
• coop to takeover 632 lloyds branches (mirror dec 2011)

Econ 3 Key theme 1 : Olympic CBA

Introduction:
Hot topic and possible to consider within the Econ 3 Cost Benefit Analysis (CBA) Framework:

  

Economic Concepts
Private Cost: Direct costs of the project (estimated involved between £9bn and £12bn on construction venues, staffing and policing the event.
External Cost: Third party effects of the games such as increased congestion and other disruptions to normal routines during the construction and hosting of the games.
Private Benefit: Direct value extracted from the consumption of a good or service eg enjoyment from being there when Bolt runs the100m final
External Benefit: third party gains from the decision to produce and consume.  Multiplier effects of construction and investment, legacy notions of facilities and a new generation of fitter healthier people
Secondary Markets:  touts selling tickets above face value

Analysis;

• secondary markets

• External Costs

   
• External Benefits

video olympics legacy

 Evaluation

• In reality the picture is complex with the creation of :
• short and long run externalities
• of consumption and production
• of a positive and negative nature. 
• Identifying them and attaching a value to them is an extremely difficult task.
• Ulitmately the costs could be considered to be relatively short term whilst the benefits in terms of the legacy of the games is relatively long term.
• Regionality of impacts is another issue all together.

Links:

• ft in depth: 2012 olympics
•  
• bbc 2012

econ 3 vocab and diagrams

Choose a Study ModeScatterLearnFlashcards

Study these flash cards | Study economics flash cards

Choose a Study ModeScatterLearnFlashcards

Study these flash cards | Study economics flash cards

income wealth and poverty

monopsony employers

wage determination

privatisation and deregulation

efficiency and equity

competition policy

monopoly

perfect competition

theory of a firm

costs and revenue

econ 3 revision sheets - market contestability

macro context material

key context documents:

• macro overview ppt
• macro evaluation key comments 2012
• putting things into context 2012

Bank of England Inflation Report 15 May 2012 video + page

BBC Economy Tracker

  global overview imf bbc discussion(sept 2011)

Econ 3 Key Diagrams

Choose a Study ModeScatterLearnFlashcards

Study these flash cards | Study economics flash cards