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As losses racked up in the financial sector, compounded by some rash mega-mergers and acquisitions, the British government had to bail out the banking sector as a whole in Oct 2008, much as was happening in the US and Europe. In total 400 billion GBP was committed. This included the injection of capital and underwriting of share issues, debt guarantees and short term loans. The biggest recipients of aid where RBS (Royal Bank of Scotland), HBOS (Halifax Bank of Scotland) and Lloyds TSB. The government later forced the merger of Lloyds TSB and HBOS into the Lloyds Group. Other more limited participants included Abbey, Barclays, HSBC, Standard Chartered and Nationwide.
GDP growth turned negative in Q2, with a technical recession starting in Q3. Chancellor Alastair Darling called it the worst economic scenario since the end of World War II.
As confidence in the British economy dropped, Sterling (or the British Pound, GBP) started to collapse, losing approximately 30 per cent against its main trading partners.
The global crisis changed the face of monetary policy. Central banks deployed new tools to counter the effects of the crisis, which have reduced the risk of deflation, stabilised the financial system and calmed financial markets; but potential negative side effects remain. Two weeks ago, the IMF organized a major research conference, in honour of Stanley Fischer, on lessons from the crisis. Here is my take. I shall focus on what I see as the lessons for monetary policy, but before I do this, let me mention two other important conclusions. Read more
Mohamed A. El-Erian,
Isam al Khafaji,
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