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Impact of the 2008 Global Financial Crisis on the Banking Sector

Analyse and Evaluate the Impact of the 2008 Global Financial Crisis on the Bank Sector
Things were unnoticed until it happened. The sudden shock in 2008 caused large number of unexpected outcomes to the global banking industry. The purpose of the essay is to analyse and evaluate regulations that governments issued to deal with the consequences that exposed after the crisis. Since it plays a crucial role on the recovery process and calm taxpayers’ emotions at the same time try to protect their right such as the issue of Basel III stress testing system.
The global bank sector especially in western countries heavily suffered from the subprime crisis. The US mortgage-backed securities and collateralized debt obligations with initially offer higher investment return and seductive risk ratings such as Triple A products absorbed many countries’ banks to do a cross-broad investment (Zandi, 2009). Naturally, the meltdown of financial instruments would spread through the global banking industry.
The negative impact mainly appears on worldwide banks business performance according to the credit crisis. As the table below shows the movement of ‘average global return on capital fell to 2.69% in 2008/09, from 20.02% in the previous year’ (IFSL, 2010, p.4). The characteristic of these financial instruments appears to have high leverage rate, in other words, the debt level is higher than the expected cash flow. In addition, the market value of these products does not equal to its fair value. Consequently, in Europe and the US, some banks could not afford the spread of value and went to fail such as Lehman Brother, and some banks such as JP Morgan were restructured and bailed-out by governments.

The downward performance on banks raised the attention of governments and relevant regulations introduced to deal with the weakness that imposed in the financial crisis. Mishkin (2010) states that Investment banks expand on a large scale in the self-operated business of highly leveraged financial derivatives before and during the credit crunch. It is suggested that higher leverage rate usually follows with higher risk-taking, which may contribute the bankruptcy of these institutions.
As in the United State, in response to the great recession, the Dodd-Frank Wall Street Reform and Consumer Protection Act was issued by the Obama government (Congress, 2010). Still, the Volcker Rule proposed by Paul Volcker as a part of the Act mainly concentrates on the transform of bank sector. It offers two proposals to deal with the problems that financial institutions incurred during the crisis.
First, limiting the scope, or controlling the speculative trading activities of banks. Volcker Rule (Congress, 2010) documents the prohibition of banks to invest in or sponsor a hedge fund or a private equity fund, or proprietary trading operation for its own interest and irrelevant to their clients. The rule aims to improve the transparency of the bank operation systems and arise the awareness of these institutions to take responsibilities. According to the policy, banks need to divide the commercial and investment sector strictly and being more cautious with the business of clients. However, critics pointed out some limitation of Volcker principle (Elizabeth, et al., 2010). As metric tools for banks to calculate the performance on investment and commercial sectors are flexible and the rule appears to vague on this part (Valladares, 2018). Thus, it is hard to trust the self-assessment result published by financial institutions. Yet, for the implementation of the rule, each bank has a transition period and grace period, and there are no specific items to restrict banks to comply with the rules (govinfor. 2010). Therefore, Volcker Rule is relatively loose and gives the possibility of companies to escape and extend the date of execution.
Second, limiting the size, ending ‘too big to fail’. Paul (2010) proposed forbidding government bailouts some troubled systemically important financial institutions (SIFIs). In addition, investment banks have undergone ownership transformations. For instance, Morgan Stanley and Goldman Sachs transfer to be regulated as commercial banks with federal government guarantees (Guardian, 2013). However, the government would not always be capable to secure SIFIs in the long-term period since the creditability of it had been suspected.
Compared with the US, German’s central bank Deutsche Bank still put large efforts on the business of the investment sector. Instead of following the mainstream trend to decrease the derivatives exposure, Deutsche continued to respect the high leveraged business model and high-risk financial speculation.
This business model has brought considerable profits to Deutsche in the short as it accounted for 60% revenues, but in the long-term it does hurt the bank’s value. For instance, Deutsche bank cut a fifth of its global workforce especially in the investment sector to reduce the cost and ensure the daily operation (Pandey, 2019).
Moreover, when comes to regulations issued on saving reputation, Deutsche Bank concentrated on the recovery of shareholders wealth and the payout ratio (Y. Biondi, I. Graeff, 2017). However, the bank did not develop a sustainable policy to maintain the stability of the stock market and the uncertainty of dividend price is tightly connected to the company’s growth, cash flow and asset liquidity. For example, the dividend per share increased significantly with €1.30 in 2001 to €4.5 in 2007 which increased by 246%, then dropped considerably by 88%, € 0.50 in 2008 and then return (Deutsche Bank, 2016).
Different from Germany, the government strictly controls the investment sector on the UK. The banks in the United Kingdom are now partly or wholly owned by their government which intend to establish a much safer financial system. For instance, the largest banks ring-fence their investment department from the retail department which aim to protect retail banking sectors from other risks in the financial system and to improve the flexibility and solvability of banks (BBA, 2016). However, the ring-fencing might reduce the available activity of commercial banks and limits the variety of individual investment.
It is undeniable that these countries have actively remedy and reformed the damage caused to the banking industry after the 2008 financial crisis, but they all seem to stop at the urgent need and the effect of recovery tends to be slightly dull.
Not only to solve problems exposed after the crunch on the bank sector, governments and authories also trying to protect the right of taxpayers. Basel III offer a global stress testing system designing to enhance bank capital requirements by increasing bank liquidity and reducing bank leverage (BIS, 2018). In other words, it works as a supervisory standard for checking whether banks have capabilities to meet another extreme situation such as a new financial crisis.
The stress testing would benefit the market participant such as taxpayers to invest in a safer environment. Firstly, stress testing forces banks to disclosure some internal information to public which reduce the opacity and information asymmetry between taxpayers (Kapinos et al., 2018). As more information be more transparent, taxpayers can keep the mindful of avoiding investing on residual financial products and make more wisely decisions. Secondly, stress testing can act as a clock to remind taxpayers when financial system appears to have a fundamentally unstable behavior. Under the period of economic and financial calm, the market would be vulnerable to huge losses and easy to fall into collapses (Kapinos et al., 2018). Hence, taxpayers would need the stress testing system to recognize the uncertainty investment portfolio and perceive the following development would not respect the current market trends. For instance, during the great recession, almost all market participants expected a higher mortgage price on the US housing market instead of the considerable devalue and nearly several companies created a stress testing to predict the movement.
Basically, stress test would be efficient on disclosing the information and risks of bank industry. However, some scenarios would bring unmeaningful outcomes, although the risks have been revealed (Thun, 2013). For example, since Deutsche Banks’ American subsidiary passed the stress test, but it developed delinquent conducts such as money laundering (Stacey and Morris, 2019). Thun (2013) stats that the hardest barriers might be insufficient data and uncapable designer to establish a complete scenario that not only focus on the know defect, but also the foreseeing risks. The misleading from the root may directly affect the method that taxpayers supposed to follow. Therefore, the wrong guidance would be an approach that damage taxpayers’ benefits.
Governments and authorities offered regulations positively response to the negative impact fallen in the global bank industry after the 2008 financial crisis. America, Germany and the United Kingdom as typically western countries concentrated on reforming the industry rules to control and intervene the operation of investment banks’ businesses. However, the regulations would only solve the urgent need, not establishing in a sustainable development perspective. Taxpayers’ rights have also been concerned, as taxpayers blindly invested on the US mortgage, large amount of them suffered losses. Basel III stress testing works as a guidance to support market participants perceive the movement of market. Critics pointed the limitations of current stress test on inappropriately using scenarios to mislead the industry. The system needs more data and talent to continue the future adjustment.
Biondi, Y. and Graeff, I. 2018. Rethinking bank shareholder equity: The case of Deutsche Bank. Accounting Forum.41(2017), pp.318-33
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Kapinos, P., Martin, C. and Mitnik, O. 2018. Stress Testing Banks: Whence and Whither? Journal of Financial Perspectives. 5(1), pp 3-4.
Kay, J. 2016. Don’t Always Believe A Balance Sheet. Financial Time. [Online]. 16 February. [Accessed 19 August 2019]. Available from:
Stacey, K. and Morris S. 2019. US Fed quizzes Deutsche on ‘bad bank’ plans. Financial Times. [Online]. 24 June. Accessed 19 August 2019]. Available from:
Maslakovic, M. 2010. IFSL Research: Banking 2010. [Online]. London: IFSL. [Accessed 19 August 2019]. Available from:
Mishkin, F. 2011. Over the Cliff: From the Subprime to the Global Financial Crisis. Journal of Economic Perspective. 25(1), pp.49-70.
Pandey, A. 2019. Deutsche Bank’s uncertain road to recovery. DW. [Online]. 5 July. [Accessed 19 August 2019]. Available from:
Thun, C. 2013. Stress Testing: European Edition. The Journal of Risk Perspectives. 1, pp 24-39.
Valladares, M, R. 2018. BankThink Getting the Volcker Rule right may be a waste of time. American Banker. [Online]. 15 August. [Accessed 1 September 2019]. Available from:

Impact of Employee Engagement in Banking Strategic Success

The People Manager through their management functions can engage their employees and collectively contribute to Strategic Success.

Credit Unions are “continuously being challenged in areas of Governance, Risk and Operational capabilities”. (Central Bank of Ireland, issue 9, p.1) Credit Union Plus comprises of what were originally five individual Credit Unions. They merged in 2016-2017 with the goal of securing its foundations for its combined members of 48,000. Like most Credit Unions our revenue is dropping, and costs are increasing. One of Credit Union Plus key strategic objectives is to grow its loan book. Many factors including economic climate, marketing, technology etc will contribute to the success of this plan. One of our greatest assets are our staff. This assignment is based on the concept that employee engagement is key to achieving strategic success. Through employee engagement we can encourage and motivate our staff to be proactive in selling loans to our members. This will contribute significantly to the growth of our loan book. The People Manager can, through their many functions encourage employee engagement which will in turn aid the implementation of strategic goals.
Employee engagement has numerous definitions which encompass a workplace designed to ensure that employees are committed to their organisation goals and values. It is a topic that has been debated and no single definition has been agreed upon. Beverely Kaye of Career Systems International has stated “We are pretending that engagement is a new thing, Engagement is a new word for a very old thing. Engagement is a new word for motivation, passion, and commitment”. (Ketter, et al. 2008 p45) Wildermuth states that “Experts have defined engagement as a persistent state of work fulfilment”. (Wildermuth et al. 2008 p51) Liberman states that employee engagement is “the willingness of an employee to exert discretionary effort toward their work” (Liberman, 2015, p.22). Regardless of the lack of a single definition, Employee Engagement encourages employees to work on an individual and team basis; to contribute to the implementation of strategic goals set. One would hope that as a result they would benefit from personal reward and have a sense of belonging to the organisation while adopting its views and culture.
An argument could be made that the start of employee engagement is in the recruitment and selection process. The people managers participation in the recruitment process would allow identification of the most suitable candidates. To date Credit Union Plus has used unstructured interviews for member services selection. This method has proven to be low cost but also low validity. Scientific evidence suggests that more structured interviews encourage prospective employees to utilise the SOAR (Scenario, Ownership, Action and Results) model to illustrate their experience and suitability to the position available. Greene in “Selecting Superior Sales staff” cites a four-step interview process in which step four is entitled “The weeding out process”. Greene believes that this process encourages the candidate to demonstrates their commitment and “coachability”. (Greene, 1992, p79). Commitment and Coachability is destined to have a positive affect on employee engagement once in situ. Liberman argues that ideal candidates will have a feeling of “a strong emotional bond to their credit union and caring about its future, being willing to invest extra effort, being fully involved in and enthusiastic about their work, and acting in a way that furthers their credit unions’ interests” (Liberman, 2015, p.22)
Once the correct calibre of employee is in place the people manager can then utilise two of their core skills, namely coaching and delegation. Effective coaching and delegation will enable employees to acquire the correct skills to implement strategic goals on an individual and team basis. Coaching yields positive outcomes as staff may feel they have a choice in how something is done. This results in commitment to the organisation and its goals, enhancing employee engagement. The people manager must ensure they respect the employee and acknowledge their abilities and skills. Engaging managers facilitate and empower rather than control and restrict staff. In doing so they enable employee engagement. Credit Union Plus has recently commenced Personal Development Plans. This will contribute greatly to the alignment of personal goals with the strategic plan. In addition to this the GROW Model could be utilised to create a superior coaching structure. A study into executive coaches by Contractor identifies how some businesses are engaging the services of expertise coaches to “practise the art of empowerment through delegation”. (Contractor, 2013, p.13). Although executive coaches would not be viable in Credit Union Plus it is apparent that delegation of tasks by the people manager will motivate staff and encourage them to promote and support organisation goals. A feeling of shared purpose and encouragement through their personal development plan can be a key enabler for employee engagement.
Credit Union Plus is a dynamic institution that acknowledges the positive affect which Personal Development Plans can have on strategic success. However, the people manager must also be equipped to manage those employees who underperform. The Equity theory supports the principal that if underperformers are not addressed a perception of disparity can arise. If this occurs, it can result in ordinarily good performers dropping their pace as they see there are no repercussions for underperformance. The effectiveness of employee engagement is lost if this were to occur. Therefore, it is imperative that the people manager is equipped with skills to challenge those employees regarding underperformers. Effective objective setting will be extremely important and should eliminate any gaps between expectations and performance. Absence management is another sector that the people manager will need to develop prowess in. The absence of employees can have monumental affects on customer service which in turn impedes employee engagement. Staff may feel that they are under pressure due to an increased work load and do not have the time to provide superior customer service. In a service driven environment, time is of the essence. If the company is suffering from absenteeism an individual employee may feel that they do not have the time to go the extra mile in delivering superior service. In the case of Credit Union Plus this could result in the loss of secured loans as the member service representative is under time pressure and releases shares rather than encouraging the member to take a secured loan. It is evident that absence management is of critical importance and that the lack of a policy and or control can have a negative effect on strategic implementation. There are many other areas surrounding employment legislation that may need addressing. Knowing when to refer a matter to HR is of utmost importance and can eliminate any possibility of the people manager dealing with an issue ineffectively.
The People Managers own ability to plan and organise their own time can impact on strategic success. Poor organisation at work will affect performance, it illustrates poor control which employees will pick up on. Evidently if the people manager cannot manage their own time and stress levels this will impede on performance of direct reports. Being familiar with time management tools and being somewhat resilient to stress, benefits the people manager in their own role and in supporting their direct reports. The environment in Credit Union Plus demands the people manager to be an excellent time manager. Staff will constantly look for time to accomplish individual tasks. It is of vital importance to ensure that workflow is managed, ensuring timely completion while guaranteeing adequate services cover always. If employees feel stressed, they will not give due diligence to members which will result in loss of engagement. Time management on behalf of the people manager should help reduce the possibility of employees being stressed.
Being conscious of staff’s levels of stress can be a clear indicator of the people managers emotional intelligence. Weiss, reviews the article “Promoting Emotional intelligence in Organizations: Making Training in Emotional Intelligence Effective” by Cherniss et al. They define emotional intelligence as “the ability to accurately identify and understand one’s own emotional reactions and those of others”. It also involves the ability to regulate one’s emotions, to use them to make good decisions, and to act effectively. (Cherniss et al, 2000, p. 67-68). It is argued that emotional intelligence has become as important as intellectual intelligence. Daniel Goleman’s and others model of emotional intelligence breaks down emotional intelligence into awareness of ourselves and others and management of ourselves and others. The people managers ability to communicate with direct reports can have a positive impact on them and in turn on strategic success. The awareness of their own strengths and weaknesses, their openness to feedback and their willingness to learn from others, will help them manage emotions, follow through on commitments and adapt to changing circumstances. This will positively impact on staff and will inevitably enhance the relationship between the organisations culture and values and employee’s motivation and engagement. Senior management having a sincere interest in staffs wellbeing is a key driver for employee engagement. Having a high level of emotional intelligence will enable the people managers ability to enhance employee co-operation. It will also enable successful motivation towards achievement of organisational goals. Many research theories such as Maslow’s Hierarchy of Needs and Alderder’s Existence, Relatedness and Growth theory link motivation with performance and if the needs of the employee are not being acceded then motivation may decrease. Alderder argues that all categories of needs can become more important as they are satisfied, and individuals place greater emphasis on any single category as opposed to simply moving from one need to the next. It is apparent to the people manager in Credit Union Plus that when needs of staff are not achieved, motivation drops, and employee engagement reduces. Although it is not always possible to meet employee expectations e.g. grant annual leave that is oversubscribed, it is important that the people manager continuously communicates and attempts to increase morale in staff. Other barriers exist also. The lack of knowledge about engagement or the lack of worth placed on engagement can be an obstruction to employee engagement. A change in culture is sometimes required. Credit Union Plus recently introduced a staff forum where by staff could bring operational issues or other to the forum through a representative. This facilitated an increase in communication and in turn allowed for employee engagement to increase.
Conclusion / Recommendation:
It is evident from various bodies of research that employee engagement has a monumental effect on strategic results. The people manager must utilise all their skills and management functions to facilitate employee engagement. An in-depth study on the people managers functions identified numerous ways in which successful management can contribute to employee engagement. Due to issues beyond their control it may not always be possible. An example was given where the staff member became disgruntled as they did not get the annual leave they required. It is not feasible to give employees everything they want just to maximise employee engagement. Lack of resources will be another barrier to engagement. The area of absence management was studied, and this was identified as a significant area that can impact on service in Credit Union Plus. The lack of a policy can results in the loss of employee engagement due to stress being placed on staff. One could argue that although a significant emphasis should be placed on employee engagement by the people manager it is a cultural aspect that needs to be endorsed from the Board of Directors down. This is what would truly create an environment of employee engagement. Shared purpose, engaging managers, employee voice and integrity will assist in adopting a culture that is required for employee engagement. A culture of communication will engage employees, and this is an area that has been identified as requiring improvement in Credit Union Plus. Liberman concurs when he states “Sharing important credit union information with staff, as well as holding formal and informal regular meetings with staff “would improve engagement. (Liberman, 2015, p.22)
Central Bank of Ireland, Credit Union News, Issue 9.
What’s the Big Deal About Employee Engagement? Ketter, Paula T D; Jan 2008; 62, 1; Accounting, Tax