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Banks Start Avoiding Short-term Financing
Short term financing has made the UK financial market volatile. To check this vulnerability, FSA has ordered a sharp reduction in the approval of short term financing and unsecured loans.
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February 28, 2008 (FPRC) -- Banks in the UK now avoid short term financing due to the credit crunch. The way bankers were encouraging short-term unsecured loans generated the current financial crisis. Some financial analysts are of the view that bankers' bonuses should take into account the long-term consequences of investment decisions, not just short-term fallouts.
"The remuneration structure of the UK banking system is too short-term and risky in nature and this does not add value for the longevity of country’s financial health," said Mr. Hector Sants, the head of the Financial Services Authority. There should be restriction on short term lending and unsecured loans and this restriction can bring back the credit-crunch hit UK financial market onto the track.
The credit crunch can be handled by deducting the overall expenditure structure of the banking structure. “The shareholders should be given the opportunity to vote on the remuneration of senior executives in the banking industry” suggested Angela Knight, chief executive of the British Bankers' Association.
The key issue of ensuring a fair remuneration is a tough challenge for the UK financial market. Strict measures should be taken to seal the multiple shrinking points. But the remuneration must be competitive and at par with the international market. FSA has failed to communicate properly with the bank's management to force a reduction in the short term transaction risks. Now, FSA is planning to make a pretty steep reduction in the amount of credit available and the cost of short term borrowings. A stark message regarding this has been circulated to 300 banks and other financial institutions by FSA.
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Keywords:
Unsecured loans
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