In this country banks are being urged to lend, especially to small Essay

In this country banks are being urged to lend, especially to small businesses (vide Project Merlin) and for mortgages, but also - Essay Example Loans to small and medium size business ventures form the bulk of the credit facilities offered by banks at any one time and therefore have a critical responsibility in ascertaining the stability of an economic framework. Private developers equally get credit facilities in terms of mortgages and this has been in the rise with the advent of a booming real estate business across the globe. Bothe local and international investors have continuously sought the intervention of banks through monetary assistance through credit facilities which have been termed a critical stimulant to an economy reviving from effects of financial crises or intending to build on internal reserves in finances. In the UK, in the aftermath of the global financial crises, the banks are being encouraged to adopt the lending strategy especially to small business and for mortgages. Moreover, they are required to step up regulatory and precautionary measures in building up capital reserves in order to aid in the smoot h operations within the economy. However, an outright dilemma sets in regarding the balance between the safe lending and the ways to build up the capital reserves as required. The government of the United Kingdom plays the role of regulation and creates an enabling environment for the banks and small business enterprises that are the target in the credit facilities. On the other hand, the banking sector within the country has a central role in formulating and adopting favorable policies, which will serve to regulate the credit facilities, advanced while at the same time monitoring the growth of financial capital stocks in the banking sector. Drawing lessons from the 2007 to 2008 financial crises, Gambacorta and Marques-Ibanez draws the conclusion that stability in financial intermediaries plays a critical role in ensuring that there is a smooth transmission of credit facilities between the banks (lenders) and the borrowers (the likes of small and medium size businesses). The strengt h of bank lending channels plays an important role in provision of credit facilities in that bank-specific characteristics are central in credit provision. However, structural adjustments and changes during the period of crises resulted to favorable outcomes in restoration of sanity within the economy. During the crises, the loan supply suffered restriction greatly from weaker capital positions from banks as well as overdependence on non-interests loans and market funding. This therefore points to the risks that are prevalent to banks over funding liquidities. The conclusion from the lessons learnt support the need of establishing regulatory and monitoring mechanisms on those factors that work in favor of or against monetary transmission more so during periods of crises. The central bank has a specific role that of supervisory role to the other banks and keeping a proper statistical data base of all the banks for monetary regulation and advisory roles (Gambacorta and Marques-Ibanez, 2011, p.1-28). In order to address the rising concerns, there are various tools that can be applied within the banking sector, which would include imposition of monetary policies, deregulation as well as financial innovation. However, monetary policies are argued not to be very neutral from the perspective of financial stability. Financial