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• separation of retail and investment banking "firewall" Glass Seagal Act from 1930s repealed under Clinton in US allowed recreation of bubble conditions through leverage not seen since the Great Depression.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)