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Theory and practice
Authors: Mike Buckle and John Thompson

The early part of the twenty-first century has witnessed a sea-change in regulation of the financial system following the financial crisis of 2007-2008. Prior to that financial crisis, the official policy was directed to deregulating the financial system, whereas after 2008 the move is towards increased regulation. This book begins the study of the UK financial system with an introduction to the role of a financial system in an economy, and a very simple model of an economy. In this model the economy is divided into two distinct groups or sectors. The first is the household sector and the second is the firms sector. The book describes the process of financial intermediation, and in doing so, it examines the arguments as to why we need financial institutions. It highlights the nature of financial intermediation, and examines the various roles of financial intermediaries: banks as transformers, undertaking of transformation process, and providers of liquidity insurance. The nature of banking, the operations carried out by banks, and the categories of banking operations are discussed next. The book also examines the investment institutions and other investment vehicles. It examines the role of central banks in the financial system in principle, particularly, the role of the Bank of England. Primary market for equity issues, secondary market, the global stock market crash of October 1987 and efficient markets hypothesis are also covered. The book also looks at the trading of financial derivatives, risk management, bank regulation, and the regulation of life insurance companies, pension funds.

Mike Buckle and John Thompson

equity securities are traded. We then examine in section 7.5 the nature of and causes of the global stock market crash of October 1987 and the ‘technology bubble’ in the late 1990s that led to global stock market falls from 2000. In section 7.6 we consider the degree to which stock markets conform to the efficient markets hypothesis. Our conclusions are presented in section 7

in The UK financial system (fifth edition)
Mike Buckle and John Thompson

process is part of a larger phenomenon termed securitisation – for further discussion see section 3.8. 2 Note also that deposits are insured against default to a limited extent – see chapter 15 for further details. 3 A global stock market crash occurred in

in The UK financial system (fifth edition)