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4/14/2016

Methods of Research Research proposal

STUDENT NUMBER – 15014634

Table of Contents Abstract...................................................................................................................................2 Aims.......................................................................................................................................2 Motivation..............................................................................................................................2 Introduction............................................................................................................................3 The History of Banking Regulation and Financial Crisis......................................................4 A New Approach to Regulation in the UK Banking..............................................................4 Research methodology...........................................................................................................7 Sampling.............................................................................................................................8 Data Collection and Analysis..............................................................................................8 Ethics................................................................................................................................10 Limitations........................................................................................................................10 Budget and Timeline.........................................................................................................11 Week 1 – 4: Sending invitations for focus groups Discussions and requests for 1-to1 interviews..............................................................................................................................11 Week 4 – 8: Moderators guide preparation for both interviews and focus groups interviews ..............................................................................................................................................11 Week 8 – 12: Conducting data collection, interviews and company documents review......11 Week 12 – 16: Conduct focus group workshops and further interviews if need be.............11 Week 16 - 20: Data analysis.................................................................................................11 Week 20-24: Reviewing data and presenting to interviews for consent...............................11 Week 24: Present findings....................................................................................................11 Budget Schedule.......................................................................................................................11 Conclusion............................................................................................................................12 References................................................................................................................................13

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Abstract In recent years, the UK legislators and authorities have introduced a large number of new regulations with the objective of making the banking sector more stable and reducing risks. Most recently as a result of the global financial crisis of 2007, there was a call for tighter regulation of the UK’s banking system intended to prevent a repeat of the situation. The bank reform bill was passed 2013 in one of the key reforms was Ring-fencing UK banks as recommended by the ICB, chaired by Sir Vickers. This study tries to provide insights on the magnitude of the cumulative effect of the most important new regulation-Ring fencing on the banking sector in the United Kingdom.

Aims This paper aims to provide some insights into the new bank regulation: structure reform - ringfencing. It aims to: 

Understand Ring-fencing by investigating its origins in the United Kingdom banking sector

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Understand the stability benefits and economic costs of simplified banks’ internal structures

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How banks are implementing the policy and what they have done at the moment

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The implications it has on banks: structure, governance, legal, financial books

Although few previous studies have explored related issues, no recent research has explored on the subject to investigate the current position of banks in the United Kingdom since the passing of the Bill in 2013. This paper adds to the literature by focussing on some unexplored aspects and current stand points on banks in implementing the program and how they are being affected.

Motivation After the 2007-2009 financial crisis, one important aspect that have been widely discussed, making banking safer and stable. Due to the crisis, the government bailed out the too big to fail banks, giving them 128 billion pounds, taxpayer funded. To today, the banks have not paid back the loan and are reluctant on doing so. As a taxpayer, I want to understand what the government has done to avoid another bailout of the TBTF therefore motivated to study the response by the government to ringfence retail banks from investment/whole banking.

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Adopted : Financial Times

Introduction The studies on ring-fencing the banking sector is a relatively new concept dating back just five years ago, in the wake of the financial crisis. Exploring this concept of ring-fencing in its infant stage

particularly in the UK banking sector where it’s in its implementation stage to see full completion by 2019, is important as its constantly under the scrutiny and is met with great scepticism by academia’s. Literature on this subject is scarce as previous research discusses on full separation of banking arms. Fewer past research discuss only on its aims as a minor policy suggestion and are mentioned in this papers. This paper starts on a discussion of the evolution of the bank regulation as a series financial crises attacked UKs banking industry, before further discussing the new approach to regulation as a result of the recent 2007-09 financial crisis (emerging of ring fencing). In the paper I will suggest qualitative research strategy as an approach to investigate and interpret findings on the implications the new approach of ring-fencing has on the Four of the big universal Banks in England. I will suggest primary data collection methods through indepth interviews, focus groups and company documents review. The participants will include industry experts, academia’s and bank leaders. Data collected will be analysis through the use of qualitative techniques such as coding. I intend to collect data and analyse it ethical, and one way is getting participants consent. The proposal will end with an outline of estimated costs in a budget and a timeline to which the research will be carried and conclude the paper by discussing key methods in the proposal.

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The History of Banking Regulation and Financial Crisis Bank Regulation has been a hot subject in the global financial sector, with change its reoccurring topic of debate. Ever since the formalisation of banking, policy makers and academics have constantly reviewed how banks are governed in an attempt to prevent system failure. An article by financial times define Bank regulation as “the laws and rules that govern what financial institutions such as banks, brokers and investment companies do, with an aim to protect investors, maintain orderly markets and promote financial stability”. [ CITATION Fin16 \l 2057 ]. Bank Regulation by this definition can be identified as a code of conduct that administers the operations of banks with the intention to see fair trade in the sector. Historically bank regulation was pictured as an exchange between partners, not as an exercise in authority, as it operated informally and in secrecy as a gentlemen’s oligarchic club[ CITATION Mor86 \l 2057 ]. It was after the Barings crisis in 1890 that these clubs (also known as merchant elite banks) requested for some level of supervision from the Bank of England as they were concerned with the possibility of a systematic collapse. [ CITATION Zie88 \l 2057 ]. A series of banking crisis attacked the United Kingdom (1973 second financial crisis, Baring Crisis 1990, 1998) which saw significant shifts on regulation with the passing of Banking Acts (1987 and 1998 and 2000) respectively. All Acts asserted for Structural reforms in the banking sector and sort interventions by the state in the form of supervision and regulation. This saw the creation of the financial services Authority (FSA) – a third party regulator whose role was rule making, supervisory and had judicial powers.[ CITATION Koc91 \l 2057 ], [ CITATION Fin00 \l 2057 ] Although regulation gave the illusion of security, the UK financial sector found itself, yet in another crisis, one that threatened a repeat of the Great Depression, which resulted in a cost of £128 billion pounds bailout, taxpayer funded.[ CITATION Fin16 \l 2057 ] According to a report by the Adam Smith (2013), the ‘Tripartite’ regulators (Treasury, Bank of England and Financial Services Authority) were to blame as they were seen as “divided and confused”, allowing bankers to make over-optimistic business decisions on the back of a decade and a half of a huge government-led expansion of money and credit. This crisis in particular left the credibility of financial regulation and supervision in tatters, resulting in the abolition of the FSA in late 2011. [ CITATION Tre08 \l 2057 ].

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A New Approach to Regulation in the UK Banking As a response to the recognition that the structural and other features of the UK banking system needed reform, the new coalition government replaced FSA with two new regulatory bodies, the Prudential Regulation Authority and the Financial Conduct Authority (operates inside the Bank of England). Under the PRA, the government setup the Independent Committee of Banking (ICB) chaired by Sir John Vickers in June 2010 to advice on how to improve stability and find a way to create a stronger and more competitive banking sector to maintain London’s position as a worldleading financial market, at the same time as reducing the risks to taxpayers as a means of addressing the social discontent at the socialization of the costs of the bank bailouts[ CITATION Osb10 \l 2057 ]. The ICB published its report amongst other measures, recommending ‘ring fencing’ UK banks. [ CITATION The11 \l 2057 ] Ring-fencing is the mandatory segregation and isolation of high-street bank operations from their ‘casino’ investment businesses which are deemed more risky.[ CITATION Ada13 \l 2057 ]. In full swing ring-fencing will exclude banks that provide retail deposits from undertaking a range of activities not directly connected to providing payment services and making loans.[ CITATION Cas15 \l 2057 ]. The idea is to protect consumer’s deposits by reducing systematic risk through means of creating a ring fence and raising capital requirements for retail banks, in his Mansion house speech of 14th June 2011 chancellor Osborne. The idea of ring-fencing is originally the school of thought of Kevin James (Bank of England) who proposed it in 2007 at the height of the crisis. He argued that regulation should focus on “narrow banks” that would have to invest and borrow safely, while other banks would be given more freedom. [ CITATION Jam07 \l 2057 ]. Martin Wolf further pushed this idea in 2008, calling bank groups ‘a utility attached to a casino’ and arguing that ‘utility’ customers should be protected from ‘casino’ trading in volatile markets.[ CITATION Fin10 \l 2057 ].According to ICB Report presented by Vickers committee, the objectives of ring-fencing retail banking activities are (a) To insulate vital banking activities (retail deposits, payment systems, channelling savings to productive investments, and managing financial risk) from the risks surrounding other activities; (b) To make it easier to ‘resolve’ a ring-fenced bank that ran into difficulties, and thus enable these vital activities to be provided on a continuous basis, without taxpayer support; and (c) To curtail government guarantees. Source: ICB report

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In 2013 the UK government passed legislation enacting ring fencing into law under the Financial Services (Banking Reform) Act of 2013. (The Independent Commision on banking, 2014) .The aim: to ensure that ring-fenced bodies (RFBs) are protected from shocks originating from the rest of their banking group or the financial system in general in order to minimise disruption to the provision of core services in the UK – retail deposit taking and payment activities. [CITATION Sco15 \l 2057 ]. With the passing of the act, the idea of ring-fencing UK banks, saw great criticism from all-over the world. These criticisms stress three broad overlapping themes: a misdiagnosis by the Vickers commission and that maintaining a ring-fence between retail and investment banking activities would be impracticable and damaging. The first line of argument by critiques was that the Vickers commission misdiagnosed the causes of the financial crisis. Financial experts, Tim Ambler and Miles Saltiel in their paper “Bank Regulation: Can we trust the Vickers Report?”, argued that it was not Britain’s investment banks that got into trouble but the retail banks and building societies that provided mortgages to UK home owners who could not keep up their payments, bought US investments they did not understand, made large and risky take-overs, and borrowed too much from other banks. They recommended a different approach, creation of market-led Trust banks, simpler regulation and better supervision. [ CITATION Ada13 \l 2057 ] A similar criticism was raised by Sir Martin Jacombs where He argued that the Vickers recommendation to ring-fence was wrong. He asserted that a well-run universal bank can be perfectly safe but deplored proprietary trading. He warned against ring-fencing as he identified it as a complex structure that is expensive to run as a result of an increase the operational costs of banks and a reduction in the return on capital invested in banks which may make London less attractive as a financial centre.[ CITATION UKP11 \l 2057 ]. In the same view a study for the Bank of International Settlements indicated that ring-fence structural reforms would actually increase complexity and make the task of regulating even more complex[ CITATION Gam13 \l 2057 ].

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Research methodology This chapter will discuss the use of qualitative research as the chosen research methodology for investigating the implication that the new regulation concept ring-fencing has on the ring-fenced bodies – banks. The chapter is going to be organised in the following subsections. Research design, population, sample and sampling procedure, data collection procedures and data analysis. Research can be defined as systematic inquiry which applies disciplined methods to answer questions raised in solving problems with the ultimate goal of developing or adding to the already existing theory. It is often the case that methodology is relating to research as it denotes ‘a way of thinking about and studying social reality. The term method refers to a set of procedures through which data are fractured, conceptualised and integrated to the form of theory [ CITATION Str98 \l 2057 ]. Keddy, et al (1996) further simplifies the term method by identifying it as tools or the mode to which data is collected. However methodology is not a toolbox of different methods but an integrated structure of espistomolody approaches of gaining insight into ‘knowing how we know what we know’, hence the two terms methods and methodology are not interchangeable and should not be confused. [ CITATION Har98 \l 2057 ]. For this study, an analogy that best describes the research methodology to be used is adopted from Ansdell and Pavlicevic, 2001 as they relate methodology to cuisine. “ the overall cuisine (methodology) and its recipes (design) influences how ingredients are collected (data collection), prepared (data preparation), served (data presentation) and cooked (data analysis)”. This study will apply qualitative, deductive, interpretive and descriptive approach to try and understand the implication of ring-fencing UK banks. It will carry out primary research. Qualitative research can be defined as a form of scientific inquiry that spans different disciplines, fields, and subject matter and comprises many varied approaches. It involves interpretive and naturalistic approach thus seeks to study things in their natural settings, attempting to make sense of, or to interpret, phenomena in-terms of the meanings people bring to them. [ CITATION Den00 \l 2057 ]. In regards to this study, qualitative research is the best approach as it allows for flexibility to follow unexpected ideas during the research and exploration of sensitivity to contextual factors relevant to the study of the research topic. The same view is supported by (Strauss & Corbin, 1998, King & Horrocks , 2010).

Since the subject is a relatively new topic and is acknowledged for its complexity by banking experts (James, Ambler & Saltiel, Martin Jacombs), the reason for adopting qualitative approach is justified as qualitative approach is used to understand complex processes, to capture essential aspects of a phenomenon from the perspective of study participants, in this case the banks themselves. 7

[CITATION Mal00 \l 2057 ]. This then means qualitative research aims at extracting rich descriptive data from participants and their own experience and how they are affected by the new regulations.

Sampling This study will adopt qualitative sampling based on purposeful or theoretical sampling principles with the aim to identify “information-rich” participants who have certain characteristics, detailed knowledge, or direct experience relevant to the subject at interest.[ CITATION Pop95 \l 2057 ]. The study is targeted at the big UK banks namely: HBCS, Barclays, Lloyds, and Royal Bank of Scotland. From the four UK big banks, three leaders of the banks will be chosen to participate in this study. A panel of experts in the banking industry and a banking regulators will be invited to take part in the study for focus groups to uncover the possible and already apparent implications ring fencing has on the ring fenced bodies (RFBs).Thus the study will recruit participants through the expert purposeful sampling technique selecting 1) Leaders (Chief executive, finance & operating officer) of each of the big four the UK banks mentioned 2) Experts in the banking industry 3) Regulators The rationale for adopting expert approach in recruiting for this study lies in the nature of the subject being investigated where little is known and there is a lack of empirical evidence as yet in the subject area and high levels of uncertainty at this stage, as well as the fact that the program is not fully implemented, therefore experts, affected bank leaders and regulators can help reach the desired destination in answering the research question. It is important to note that access to leader of the selected banks, maybe difficult to gain access of. In such an event, this study has taken a backup approach to invite the retired-leader who are experts in the banking industry.

Data Collection and Analysis This chapter will focus on a detailed discussion of how this study will approach data collection and analysis. The chapter will start of by defining data , outlining the appropriate data collection method – interviews, focus groups and company documentation and will end the a proposed data analysis method. The primary methods that this study will use for qualitative data collection indepth interviews, focus groups, and company documents review.

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Interviews In-depth semi-structured interview is an interview approach that allows for exploration of individual experiences and perceptions in great detail as they are typically 1-to-1 interactions between a researcher and a study partic...