Four Functions of Management Essay

1. Explain the relationships among the four functions of management. The four functions of management are planning, organizing, influencing, and controlling. Each can be discussed individually, but as the text says are integrally related. Each play a key role in meeting organizational goals. Planning involves choosing the tasks that are to be performed to meet the organizations goals, this is tied to organization. Because organizing is tied to planning it can be interpreted as used the planned task, and then assigning them to people within the organization to put into action. Next is influencing, as you have made plans, and organized it into task, your influence over the personnel assigned and how they approach the organizations goals is key. How you motivate, lead, or direct them toward the goals is the primary goal. In a sense, influencing is a way you can obtain the fourth and final function, controlling. By measuring the performance of the personnel who have responsibility for the assigned tasks, you can then compare this to expected standards, then either influence them towards more positive gains, plan additional tasks, or steps to achieve, more, or continue to monitor progress towards goals. Each function with separate is integrally related and implements to meal organizational goals. 2. How can controlling help a manager to become more efficient? This ongoing process gives the manager the ability to gather information that measures performance, compare that progress to established standards, and then decide of addition steps or changes need to be made to insure compliance with the established standards. This process of continued process improvement, and supervising the results is paramount to achieving goals. 3. What is the value in having managers at the career exploration stage within an organization? Why? The decline stage? Why? Managers in the career exploration stage, are in a growth or upward trend in their careers, they are active in the tasks of finding that position that suits them and meets a certain comfort level, these managers are in a learning stage, willing to take on new challenges, and try new things. They are highly motivated, and working towards established goals. The decline stage is usually identified as a follow on to a maintenance phase, where no upward growth has occurred, and or the employee/manager has begun to stagnant in their position. These older, longer serving employees, have a wealth of experience, but are failing to meet the originally Scott D. Oram  and expected performance standard. They can be used to train new levels of management, and finding those members of the next generation who are going to become the next set of exploration-minded individuals. 4. Discuss your personal philosophy for promoting the careers of women managers within an organization. Why do you hold this philosophy? Explain any challenges that you foresee in implementing this philosophy within a modern organization. How will you overcome these challenges? 5. How will you be able to use the classical approach to management in your job as a manager? 6. How does Henri Fayol’s contribution to management differ from the contributions of Frank and Lillian Gilbreth? 7. Discuss the primary limitation of the classical approach to management. Would this approach be more significant to manager of today than managers would in the more distant past? Explain. 8. What is the ‘systems approach’ to management? How do the concepts of closed and open systems relate to this approach?

Great Teachers

The good teacher explains. The superior teacher demonstrates. The great teacher inspires. † Teachers – those dedicated people who educate, encourage, support, discipline and prepare us for the road ahead. They are the masters, the leaders. They are the artist that takes each class to a higher level. Their dedication has always resulted in producing something new. If I think about them humbly enough, they contribute to a great evolution, they are players in the great ocean. Teaching is deep. It's more than just imparting information. Anyone can do that.Google can do that. Wisped can do that. But great teachers do it differently. Great teachers have always understood that imagination is more important than knowledge. They go beyond the text book and have that intangible characteristic that can inspire students to do great things and become great people. Instead of just teaching major revolution in history, formulae in math,verses in English, maps in geography, laws in scie nce and Kevin in Hindi, they will make us think and force us to look at the world through the eyes of the people involved in a subject. They will challenge us to think radically and analytically.They share their insights and knowledge that allows us to explore the infinite amount of knowledge. They will engineer learning experiences that maneuver the students into the driver's seat and then the teachers get out of the way. Because they understand that students learn best by personally experiencing learning. And as the proverb goes â€Å"Teachers open the door. You enter by yourself. † One such great teacher I met was Namesakes Bradshaw, my Intermediate English teacher. She was no academic. She was not hot on action research, she had her own peculiar style or way of titivating her students.She taught the most important skills within the most important subject. She reminded us of the power of language and the delights of literature. She encouraged us to ask questions,for being prepared to argue your case, and doing so in a style that is powerfully appropriate. She relished the eccentrics in the class , the naughty ones as well as the paragons. The naughty one often only behaved for her ( I was among the naughty ones P). She had something individual to say to each student. She said when she was disappointed about something a student has done, but mostly she celebrated success.Her art of teaching was so compelling that I once broke down into tears in the middle of the class reading â€Å"A Doctors Journal Entry†. Personally, she had a powerful emotional impact on me. Used to walk out of her lessons feeling I can do things – can read better, write better, think better, learn better. Her purpose was basically the same as any good leader, to provide purpose, direction and motivation. She is simply a great teacher. I owe her a great deal – not least, my gratitude. She is more important than she'll ever realize. Thus a great teachers are the ones who are differentiated from the rest.They have the qualities of patience, kindness, resourcefulness, and open-mindedness. They listen , make their students feel secure and pushes them to succeed. A great teacher always has a sense of purpose, a positive attitude, a smile on her face and an encouraging word for her students. She explains that career choices and options are many. But your decision on career should be what you enjoy doing for the rest of your life. She motivates her students to chase their dreams and to always put their best foot forward. She will motivate and encourage to reach for the moon, so that if you miss it, you will tallest land among the stars.

Critical Evaluation Essay

â€Å"Now We Can Begin† an essay by Crystal Eastman is a very powerful essay. Eastman makes the point know in her essay that an honest and true feminist no matter where she stands in the movement she will see to the woman’s fight with strength and courage and how it matters in the future and as well as its difference in its approach for the workers fight for industrial freedom. Eastman state â€Å"In fighting for the right to vote most women have tried to be either non-committal or thoroughly respectable on every other subject. Now they can say what they are really after; and what they are after, in common with all the rest of the struggling world, is freedom† (Eastman). The women’s rights movement had many women who fought for women’s rights, some of these women included Susan B. Anthony, Elizabeth Cady Stanton and Lucretia Mott and many more. These women worked extremely hard as activist for women’s rights. The fight lasted for many years, but they day finally came and women got the right to vote and now they could begin. History.house.gov states â€Å" fortified by the constitutional victory of suffrage reformers in 1920, the handful of new women in Congress embarked on what would become a century-long odyssey to broaden women’s role in government, so that in Catt’s words, they might â€Å"score advantage to their ideals.† The profiles in this book about these pioneer women Members and their successors relate the story of that odyssey during the course of the 20th century and into the 21st century† (history.house.gov). During 1920 Eastman wrote an essay about this very issue. In Eastman’s vie w she is pointing out to her audience what women went thorough as a whole group doing that time frame. This essay was also an appeal to society now that women in the American society had the right to vote that they also be treated just the same as the men in American society that they were a part of. In 1848 there were two things that America was dealing with at the time and those two issues were women’s rights and slavery. During that same time Elizabeth Cady Stanton was head of the Women’s Rights Convention in New  York. It was with much time and effort put into many conferences that the amendment which gave the women the right to vote was written by Susan Anthony, but the amendment was not passed and made law until 1920. During this time is when Crystal Eastman started stating her views and ideas of what she would like to happen. Eastman was there first hand to see that women did not have any rights during her short life so the having the Eastman writing this article is a very valuable trustworthy source as an activist for women’s rights. Crystal Eastman wanted to see change this is obvious seeing how she helped found the International League for Peace and Freedom this group was previously named the Woman’s Peace Party Crystal Eastman served as pr esident of this organization. Eastman states how grateful she is that the law was passed that gave women the right to vote but, that is not all she expressed that she wanted more. East writes this essay playing on the emotions and logical thinking of her audience. Eastman states â€Å"Freedom of choice in occupation and individual economic independence for women: How shall we approach this next feminist objective? First, by breaking down all remaining barriers, actual as well as legal, which make it difficult for women to enter or succeed in the various professions, to go into and get on in business, to learn trades and practice them, to join trades unions† (Eastman). In this essay Eastman makes sure that is known that there is more to women that just staying at home and taking care of the house and caring for children. When reading this essay and the argument that Eastman portrays is a successful essay. Due to the hard work and efforts of Eastman and those before her such as Stanton and Motts the set and laid the foundation for success in the fight of the women’s rights movement gaining equal fair opportunities for women. Works Cited â€Å"Now We Can Begin.† Women’s History – Comprehensive Resources – Biographies, Quotes, Events. N.p., n.d. Web. 21 Sept. 2014. â€Å"The Women’s Rights Movement, 1848-1920 | US House of Representatives: History, Art & Archives.† US House of Representatives: History, Art & Archives. N.p., n.d. Web. 21 Sept. 2014.

Ford Strategies Research Paper Example | Topics and Well Written Essays - 750 words

Ford Strategies - Research Paper Example It has executed WhereNet real time for placing the technology related to ‘Vehicle Inventory Management System (VIMS)’. This system has the capacity to assemble huge numbers of vehicles on daily basis. This advanced technology facilitates to locate cars within a fraction of second (AIM, 2007). The incorporation of VIMS for inventory management ensures lesser time and money for delivery chains. The latest technology is incorporated in the company with an intention to create the entire work flexible and within a short period of time. The managing of inventory through VIMS has become easier and also facilitated the drivers in their operations. The line workers could easily collect supplies of materials with the help of WhereNet RTLS. The workers in the assembly stations are reminded by a timer to find out which tags have been triggered and the time that has been passed in between the calls. The overstocking of components during changing in shifts is also detected by means of the technology (AIM, 2007). Ford Motor Company has developed the e-commerce strategy in order to be a consumer oriented business firm. With the new strategy, the company can reach wide range of customers by providing them with highly qualitative products as well as services. The e-business strategy will facilitate the company to connect with its customers and dealers at every point of time. The company introduced new websites so that the buyers and owners can access through it. The car-computer as well as communication services would bring safety, travel, and entertainment along with Web to the motorist. The PC (Personal Computer) was provided to the employees with an intention to be a global leader in case of technology with more numbers of customers (University of Virginia, 2000). The electronic connection has been developed between the customers and the company so as to allow the customers to get information about the products at all the time. By developing this

INFLUENCE OF CULTURE ON SAFETY AND PROJECT PERFORMANCE Dissertation

INFLUENCE OF CULTURE ON SAFETY AND PROJECT PERFORMANCE - Dissertation Example It is a fact that there has over time, developed a lot of debate concerning the influence of safety culture in the construction industry of Saudi Arabia. According to Williamsen (2013), safety culture provides the project leader with the courage to follow through all the decisions that he has made because without it, then his decisions will most likely not be taken seriously by his subordinates, and will,  in fact, become meaningless. It has been found that in the Saudi construction industry, there has developed a need for the integration of conservative Saudi safety culture into the design of the building being constructed (Zou, Redman & Windon, 2008). It is a fact that many project leaders in Saudi Arabia in the past have been unsuccessful because they have failed to consider the importance of culture in this society when making decisions concerning safety and project performance, especially when these decisions were needed the most (DeJoy, Gershon & Schaffer, 2004). In this indu stry, every project leader should be conscious of the situations involving safety of their workers and this enables them to ensure that the safety of those who work in the construction site is ensured; they have to consider the best safety solutions that are culturally acceptable (Nelson, 1996; Simon & Frazee, 2005). They have to study the cultural needs exceptionally well and understand them so that their decisions concerning the project can be correct and well informed and this is likely to ensure that safety standards and the project performance are of the high. The purpose for this research is to explore how Saudi safety culture has come to influence the safety and performance of construction projects in the country. The study is based on the construction industry in the Kingdom of Saudi Arabia, and seeks to explore the impact of this culture on the safety of employees as well as on project performance. The current aspects of safety culture and safety policies that have been ado pted by the construction industry in Saudi Arabia, as well as the factors that influence implementation of safety culture in construction companies will also be examined. Among the cultural factors that are going to be explored in this research include the religious recommendations on safety, the economic considerations, as well as the willingness of the construction companies to ensure the safety of their employees. The research would be helpful in determining the degree to which culture influences safety and performance of construction projects. Background According to Carrillo (2012) the failure of those taking on projects in Saudi Arabia to understand the importance of safety culture means that they will likely make decisions that are unacceptable, and these might end up jeopardizing the entire project. Moreover, individuals in the construction industry have to consider the fact that the safety culture of the Saudi Arabia is prescribed not only on the Holy Quran but also on the Sunnah. They therefore need to conduct investigations in order to come up with as much information about it as they can to ensure that all the construction projects that they undertake are in compatibility with the Sunnah (Chileshe & Dzisi, 2012). They should be extremely careful when attempting to stop those old practices which might be detrimental to the project, but part of the local culture, because the adoption of new ones leads to the immense failure of the safety standards as well as the project

BUS499-Module 1 - Case- The Financial Perspective Essay

BUS499-Module 1 - Case- The Financial Perspective - Essay Example It is a service based company which offers services like marketing and promotional strategies, advertising scripts and advertising production for media channels, market research as well as forecasting. It is a globally recognized brand which represents global brands like Procter & Gamble, Toyota/Lexus, Visa International, and General Mills/Pillsbury. Charles and Maurice Saatchi, two brothers, founded the eponymous organization and after that in a decade the company grew phenomenally through mergers and acquisition. This company became popular because of its efficient and creative services to the clients. From the phenomenal growth in 80s the company came to recession in the early 1990 and in 1995 the company went bankrupt. To get better competitive advantages the agencies were linked with common ownership. The management of the company had decided to make changes in two areas of balanced scorecard; these are customer perspective and financial perspective. In terms of financial perspective, the management made the structural changes of the top hierarchy of the organization. In 1995, the joint directors i.e. the two Saatchi brothers quit this company and Bob Seelert, a senior official of P&G joined as a chairman of the company. Kevin Robert who was a top official of General Foods joined as CEO of in 1997 (Business-Intelligence, 2006, p.3). After this reformulation in the top level, the company started de-merging and publicly announced the next three years strategies of company’s comeback. Those goals were; growing company revenue more than market revenue, 30% of incremental revenue converting to operating revenue, doubling the EPS of the company. These goals were well accepted by the existing shareholders and become interested to the new investors (Business-Intelligence, 2006, p.3). The new management team found that the different business unit of the company did not have a common goal. They did financial health check by financial prospective analysis of

Ship Of Ghosts Essay Example | Topics and Well Written Essays - 750 words

Ship Of Ghosts - Essay Example It was the flagship of the US Asiatic Fleet and in World War II was responsible for holding back and delaying the Japanese from taking over Indonesia. The book narrates the exploits of the Houston until she sinks after a desperate and overwhelming battle with the Japanese forces in 1942, in the Java Sea. The first part of the book describes the naval combat with description of war like booming guns, falling bombs, torpedoes, etc. Hornfischer brings to life the battle as he describes the terror of nighttime naval battles where decks become slaughterhouses and the superhuman effort of the crew as they escape disaster after disaster only to be unlucky in the end when they are hopelessly outnumbered. "Son, we’re going to Hell." These words of the navigator of the USS Houston turn out to be prophetic. The men were forced to abandon the ship and are captured by the Japanese. They were then moved from one camp to another and finally end up in a labor camp in the jungles of Burma. In the second part of the book, the narrative shifts gears and follows the several hundred survivors of the ship to the Japanese POW camps in Southeast A sia. Here it focuses on the labor camps and the sub-human existence of the survivors for over three years, under the barbaric Japanese in the labor camps put up to build the Burma-Thailand Railway. The author describes how the prisoners develop a different kind of heroism when they are without weapons, when starvation stares at them and when they face the brutality of the Japanese guards. At the camps the prisoners suffered from over work, malnutrition, tropical diseases and rotting wounds. Their survival at that point of time depended on their ability to withstand humiliation and hardships without complaining. The author portrays all this beautifully when he writes about the small acts of courage like the stealing of an egg or a can of condensed milk

Jackie O concert review Essay Example | Topics and Well Written Essays - 750 words

Jackie O concert review - Essay Example Kennedy, belcher played Andy Warhol, Stephanie played Maria Callas and Joyce played Grace Kelly. The compositions according to the concert were twenty five. It however starts with an overture of Jackie’s song. It is played with a violin which leads to the beginning of the concert. The list then goes on to the different compositions and then ends with bows and credits. The main list of compositions includes the following; 3. Describe one or more musical elements that you recognize in the compositions. Identify the style period (If you are unaware what the style is, look up the composer and compare it to the period discussed in the book). The dates will often appear in the program. Mention any instrument that stands out and explain why In the composition, there is the use of the cello mostly. It stands out for me as it brings out the melancholy. It is played solo and it gives voice to Jackie’s song that is without voice in the beginning and enables one to understand the mood of the song and the opera. Other instruments used in the composition include, the piano, percussion, clarinet, the cello, a drum, saxophone, horn, trumpet, acoustic guitar, a bassoon, harp, trombone, tuba, strings and the flute. The style period is regarded as an opera because it is a series of many acts and compositions throughout the concert. Others may also call it a song cycle because of the different compositions in it. The concert is full of life. The performances bring much meaning to the titles and compositions of each of them. The costumes by the performances and the voices bring out melodies that create great symphony with the instruments. Each role of every performer is very well illustrated to bring out the stories of the opera according to Daugherty. The life presented for Jackie O is a flow of both joy and sadness. The opera brings out emotion that is illustrated so importantly in the songs and in the

Comparing Ibn khaldun ecnomics theory with laffer curve, Taxation Research Paper

Comparing Ibn khaldun ecnomics theory with laffer curve, Taxation - Research Paper Example Ibn Khaldun appears as a forerunner of the prominent American economist Arthur Laffer whose suggestion complements that high rates contract the tax base since decrease the economic activity (Ibn et al. 1969). According to Laffer, the relationship amid tax and revenues is that changes in taxes have effects on profits. Ibn Khaldun’s concepts are comparable to those of supply economics that emphasizes incentives and tax reduction as a way of economic development. Ibn Khalduns’ taxation theory is considered a unique and one of his most significant contributions to the economic policy. His tax theory has cemented a place in the world of economics. The paper attempts to table experimental evidence that can support and fortify his tax theory. It similarly introduces Ibn Khaldun’s exemplary work Muqaddimah as well as economic ideologies seen in his work. On another account, the essay seeks to examine Ibn Khalduns’s theory and the Laffer curve comparatively. The key objective of Ibn Khaldun’s theory of taxation is to reduce to the lowest level possible the levies upon individuals capable of undertaking cultural enterprises. Through this way, the individuals will psychologically dispose of themselves to undertake their activities because there is an assurance that they will make a profit at the end of the day. He, therefore, advocates reducing the burden of taxation upon business entities, as well as producers, in order to entice the enterprise through guaranteeing greater returns to the entrepreneur, as well as revenue to the government. In practice, he realized that the government depends on low taxes. And for that reason, the enterprises increase in the number as well as size therefore permitting the growth of the tax base, revenue, and governmental surplus (Ibn et al. 1969). At the conclusion of a dynasty, taxation produces massive income from small valuation. The reason thereby is that when family trails the means of religion , it executes

Ethics in Psychology Essay Example for Free

Ethics in Psychology Essay The definition of ethics is as follows: â€Å"a theory or system of moral values; the general nature of morals and of the specific moral choices to be made by a person†. (dictionary.com ) In modern day society, we have bio-ethicists; professionals who are trained to judge what can be considered ethical, as well as strict guidelines set forth by the APA (American Psychological Association). However, during the early years of the formation of Psychology, there were no bio-ethicists or universal guidelines, therefore some of the early experiments such as the â€Å"Little Albert†, and â€Å"Mother Attachment† would be considered unethical and therefore would not be permitted today. In 1920, behaviorist John B. Watson and his assistant Rosalie Rayner conducted an experiment now called the â€Å"Little Albert†. The desired outcome of the experiment was to show empirical evidence of classical conditioning in humans. (T. Bartlett) A similar study that preceded â€Å"Little Albert† was conducted by Russian physiologist Ivan Pavlov, which demonstrated the conditioning process in dogs. It is said that Watson wanted to continue and further Pavlov’s research to eventually show that emotional reactions could be classically conditioned in humans. Watson and Rayner first selected a nine month old baby from a local hospital, his name was Douglas Merritte. The child was then exposed to a series of stimuli including a white rat, a rabbit, a monkey, masks, and burning newspapers; his initial reactions were observed and recorded. The boy initially showed no fear of any of the objects he was shown. However, the second time the boy was exposed to the white rat, it is accompanied by a loud starling clang, that clearly frightens the child. This portion of the experiment is repeated multiple times until the mere sight of the white rat, or creatures that have a similar appearance, frighten the child even when unaccompanied by the startlingly clang. The researchers have successfully conditioned Little Albert to be afraid. (T. Bartlett) Today â€Å"Little Albert† is considered to be a cruel experiment of questionable value, clearly in violation of all five of the APA’s general ethical guidelines. The APA states that psychologists must: â€Å"respect the dignity and worth of all people, and the rights of individuals to privacy, confidentiality, and self-determination. Be aware that special safeguards may be necessary to protect the rights and welfare of persons or communities whose vulnerabilities impair autonomous decision making. Be aware of and respect cultural, individual and role differences, including those based on age, gender, gender identity, race, ethnicity, culture, national origin, religion, sexual orientation, disability, language and socioeconomic status and consider these factors when working with members of such groups. Try to eliminate the effect on their work of biases based on those factors, and they do not knowingly participate in or condone activities of others based upon such prejudices.†(APA) The first problem with â€Å"Little Albert† stems from the harm caused to the individual in question. Douglas Merritte was ultimately driven to feel extreme fear and even terror when exposed to anything that remotely resembled the white rat. This was mentally damaging for the child, and may have impaired his ability to integrate himself into society at a later date. (Cherry. K) Secondly, the right to withdraw was not present in the experiment; even when the boy became distressed and even ill the experiment continued. Therefore, today, the â€Å"Little Albert† experiment would be considered highly unethical. During the 1960’s, American Psychologist Harry Harlow, conducted a series of controvertial experiments known as the â€Å"Mother Attachment Experiments†. These experiments were used to analyze the mother-child relationship in primates. In Harlows initial experiments, infant monkeys were separated from their mother’s shortly after birth and were raised instead by surrogate mothers made either wire or soft terry cloth. In one experiment both types of surrogates were present in the cage, but only one was equipped with the ability to nurse the infant. Some infants received nourishment from the wire surrogate, and others were fed from the cloth mother. Harlow established that mother love was really behavior based, meaning the offspring would seek physical comfort, rather than feeding. Harlows isolation studies also demonstrated the need for maternal interaction with their infants and the importance of play as part of the normal process of psychosocial growth. Harlow has received multiple awards for these experiments, they have been deemed of extreme significance for understanding those aspects of human behavior related to depression, aggression or sexual dysfunction, which originated in the formative years of mother-infant interaction.†(Theodore Lidz of Yale University Medical School). However, due to the fact that the experiments caused extreme psychological effects on the primates used in the trials, they could be seen as highly unethical. In the APA’s ethical principles of psychology, section 8.09 clearly states that psychologists must have a: Humane Care and Use of Animals in Research. Subsections B and D of sectio n 8.09 are relevant when considering Harlow’s treatment of the primates. Subsection B states: â€Å"Psychologists trained in research methods and experienced in the care of laboratory animals supervise all procedures involving animals and are responsible for ensuring appropriate consideration of their comfort, health and humane treatment† (APA). In the â€Å"Mother Attachment† experiments, Harlow himself was not trained in the research methods and experienced in the care of the primates, nor was there any consideration for their comfort or mental health after the experiment. Furthermore, subsection D states that: â€Å"Psychologists make reasonable efforts to minimize the discomfort, infection, illness and pain of animal subjects† (APA). Harlow failed to minimize the negative effects of his experiments on the primates in a long term setting; most primates involved in the study were clinically depressed after the termination and in some cases during the experiment.Therefore, in accordance to the APA’s ethical guidelines Harlowâ €™s experiment would be seen as morally questionable and in most cases unethical in modern society. There is no question that the science which is psychology has been built and greatly advanced through the means of what some would consider unethical means and experimentation. â€Å"Little Albert† is seen today as a cruel experiment of questionable value. However knowledge was gained from this â€Å"unethical† experiment that has helped modern day psychologists. The â€Å"Mother Attachment† experiments, have won multiple awards for their â€Å"extreme significance† (Theodore Lidz) in the analysis of behavior based on the mother-child relationship; despite the fierce criticism and controversy surrounding the experiments. Should both experiments be considered morally wrong and unethical? Perhaps. Did both experiments play a large role in the advancement of psychology? Without a doubt. Therefore in Harlow and Watson’s cases, the end justifies the means. References American Psychological Association (APA). Ethical Principles of Psychologists and Code of Conduct. Retrieved December 10, 2012, from http://www.apa.org/ethics/code/index.aspx?item=3 Bartlett, T. (2012). The Sad Saga of Little Albert Gets Far Worse for a Researchers Reputation . Chronicle of Higher Education, Vol. 58(Issue 23), A-26. Cherry, K. Psychology Complete Guide to Psychology for Students, Educators Enthusiasts. Little Albert The Little Albert Experiment. Retrieved December 10, 2012, from http://psychology.about.com/od/classicpsychologystudies/a/little-albert-experiment.htm (1975). Honoring Harlow for dedicated research . Science News , Vol.107 (Issue 24), 383.

Aetiology and Pathophysiology of Heart Failure

Aetiology and Pathophysiology of Heart Failure Rachel Corston-Jackson Heart Failure The heart is a diverse organ and the diseases associated with it are caused by many different organs when they become dysfunctional or diseased. It is for this reason that heart failure is more diverse than just the stopping or failure of the heart as there are many types and causes of heart failure. Therefore, this essay will discuss the subject heart failure in the human body by addressing its aetiology and pathophysiology, the signs and symptoms associated with it, as well as the risk factors and causal agents linked to heart failure, and lastly, the relevant tests and treatment options available to heart failure patients to improve their quality of life. Aetiology: Heart failure, sometimes called congestive heart failure, refers to when the heart isnt pumping blood as well as it should (American Heart Association, 2014). It is a chronic disease characterised by the failure of the heart as a pump and is the result of any structural or functional cardiac disorders (Butler, 2012). This doesnt mean that the heart stops beating, however, the American Heart Association (2014) warns that heart failure can get worse if its not treated. The heart does not stop altogether but keeps working, despite the fact that the demands of blood and oxygen of the heart and body far exceed supply (Butler, 2012). This is caused a variety of disorders such as coronary artery disease, heart attacks, cardiomyopathy, and congenital birth defects (Butler, 2012). Coronary artery disease (CAD), as stated by Butler (2012) is a disease characterised by a narrowing or blockage of the arteries which restricts blood and oxygen supply to the heart, resulting in a reduced preload in the ventricles and reduced ventricular stretch. When low ventricular stretch occurs it results in a decreased force of cardiac contraction and a low stroke volume. The effects of low stroke volume include low blood pressure and can lead to the body’s organs and tissues becoming deprived of adequate oxygen and nutrients which may cause the body to go into a state of shock. The second cardiovascular disorder which can cause heart failure is a heart attack. A heart attack according to the Heart Foundation (2015) occurs when ‘a coronary artery becomes suddenly blocked, stopping the flow of blood to the heart muscle’. Damage to the heart muscle occurs during a heart attack, and becomes scarred, the damaged area does not function properly, resulting in a reduced cardiac output and low blood pressure. When this happens the heart compensates by undergoing a remodelling process where it changes in size, shape or structure, and according to Butler (2012) the remodelling is more likely to occur in the left ventricle as it has a thicker muscle mass. The third form of heart failure mentioned above is cardiomyopathy, which is caused by infections, alcohol abuse, or pregnancy and is characterised by damage to the heart muscle. The type of cardiomyopathy which presents during pregnancy is called peripartum cardiomyopathy (Demir, Tufenk, Karakaya, Akilli, Kanadas, 2013). It is a form of dilated cardiomyopathy and involves systolic dysfunction of the heart. Onset is usually around the last month of pregnancy and five months postpartum, hence the name. One common symptom of peripartum cardiomyopathy is sinus tachycardia which according to Demir et al. (2013) can be treated with a drug called Ivabradine. This brings me to the next section which is the pathophysiology of heart failure. Pathophysiology: Heart failure is a complex problem and is characterised by many signs and symptoms. Symptoms include; shortness of breath, orthopnoea, paroxysmal nocturnal dyspnoea, fatigue, reduced ability to exercise, peripheral oedema, loss of appetite and more (Nicholson, 2014). Signs include; Tachycardia, tachypnoea, an abnormal pulse, and displaced apex beat, third heart sounds, a raised jugular venous pressure, lung crepitation, weight changes, hepatomegaly and more (Nicholson, 2014). The common symptoms which will be focused on here include shortness of breath (S.O.B), paroxysmal nocturnal dyspnoea, fatigue, and a lack of appetite (Butler, 2012). The American Heart Association (2014) states that S.O.B during activity, at rest, or while sleeping, can have a sudden onset, often causing the patient to wake. They describe S.O.B as being caused by the blood when it backs up in the pulmonary veins because the heart cant keep up with the supply. The result is stated to be that the kidneys develop a reduced capacity to dispose of sodium and water, and that excess fluid leaks into the lungs causing a pulmonary oedema and around the lungs causing pleural effusion. The clinical sign which indicates that this has occurred, aside from S.O.B, is the presence of lung crepitations (Butler, 2012). A lung crepitation, according to Butler, is a crackling sound produced during inhalation and exhalation due to fluid accumulation inside the lungs and predominantly occurs in the lower lung fields. The American Heart Association states that peripheral oedemas can also occur as a result of the venous blood backing up and is characterised by swelling in the ankles, feet and abdomen resulting in ill-fitting shoes and weight gain due to the excess fluid accumulation. The build-up of fluid which causes S.O.B also leads to paroxysmal nocturnal dyspnoea (PND) (Butler, 2012; Nicholson, 2014). PND usually occurs at night, according to the American Heart Association, and is characterised by sudden awakening from sleep after only a few hours, with a feeling of breathlessness, suffocation and severe anxiety. On chest auscultation, the bronchospasm associated with a heart failure exacerbation can be difficult to distinguish from an acute asthma exacerbation (Dumitru Baker, 2014). Other symptoms of heart failure included fatigue. Fatigue and weakness according to Dumitru Baker (2014) are often accompanied by a feeling of leaden limbs and are generally related to poor perfusion of the skeletal muscles in patients with a lowered cardiac output. Essentially the heart produces a decreased volume of blood and cannot meet the needs of body tissues so the body diverts blood away from less vital organs, particularly muscles in the limbs, and sends it to the heart and brain (American Heart Association, 2014). The American Heart Association (2014) and Nicholson (2014) both link this diversion of blood to vital organs to the loss of appetite and feelings of nausea often experienced by people with heart failure due to the fact that the digestive system receives less blood and cannot function correctly. The common signs that will be discussed here are hepatomegaly, third heart sounds, tachycardia and a displaced apex beat. Hepatomegaly, an enlargement of the liver which can occur with right heart failure (Nicholson, 2014), and is caused by the blood backing up from the heart into the inferior vena cava, such congestion increases pressure in the inferior vena cava and other veins that carry blood to it, including the hepatic veins (Orfanidis, 2013).Once this occurs the pressure may build to a point where the liver becomes engorged with blood and malfunctions. The common symptoms of hepatomegaly are nausea, abdominal pain or fullness, swelling of the feet and legs, and shortness of breath, all of which are also seen in heart failure (Butler, 2012). The third heart sound (S3) is a low-pitched sound that occurs when the ventricles fill rapidly and is one of the more specific signs of heart failure and auscultating to determine the presence of it can help healthcare professionals to diagnose heart failure (Santhosh, 2009). S3 is commonly present in conjunction with tachycardia, which is a high resting heart rate and is common as a haemodynamic compensatory response (Nicholson, 2014). The final sign of heart failure listed above is a displaced apex beat. A displaced apex beat means ‘the point of maximal impulse on the precordium can be displaced down and to the left laterally and commonly occurs when the heart is dilated (Nicholson, 2014, p. 33)’. Each sign and symptom of heart failure is linked to a causal agent such as a previous history of Myocardial Infarctions (MI). Risk factors/causal agents: The term ‘heart failure’ includes many conditions and disease, thus it has many causal agents including; Family history, narrowed arteries, high blood pressure, coronary artery disease, myocardial infarctions, valve disorders, peripartum, ischemic heart disease, diabetes, obesity, kidney disease, hypothyroidism, toxins (alcohol), and infection (Butler, 2012; Nicholson, 2014). The causal agents which will be discussed here are narrowed arteries, high blood pressure, obesity, diabetes and infection. Family history is an important indicator of increased risk in relation to heart failure, it is however not to be considered on its own but in relation to other risk factors such as narrowed arteries (Goldberg, 2014). Narrowed arteries can refer to vasoconstriction or atherosclerosis. Atherosclerosis is a plaque formation is medium or large sized arteries in response to damage of the tunica intima (National Health Council, 2014). These plaque formations cause increased resistance to laminar blood flow resulting in turbulent flow and high blood pressure (Foss Farine, 2013). Blood pressure alone is characterised as the force exerted on blood vessel walls by a volume of blood as it passes through (Heart Foundation, Blood Pressure, 2010). High blood pressure on the other hand is known as hypertension, and is defined by the Heart Foundation (2010) as chronically elevated blood pressure resulting in stain on the heart and blood vessels. Hypertension is visually manifested by jugular venous distention on the right side of the neck (Nicholson, 2014). Foss Farine (2013) state that the elevated blood pressure is detected in the blood vessels by baroreceptors located in the carotid sinus and aortic arch. The baroreceptors are said to then stimulate vasomotor nerves to increase the diameter of the blood vessels to increase blood flow and reduce blood pressure. Another cause of high blood pressure is obesity. This is due to the fact that overweight or obese people have a greater the volume of tissue and fat that requires a constant blood supply, this results in an increase in blood vessel length (Foss Farine, 2013). Foss Farine (2013) state that the longer the blood vessels become the more distance the blood will have to travel which increases the resistance, the body will compensate for this by increasing the blood pressure throughout the body by increasing the stroke volume of the heart. This increase in blood pressure is to ensure both adequate blood supply to all blood vessels and adequate venous return. If the high weight threshold is maintained then high blood pressure will continue, causing hypertension and heart strain (Heart Foundation, Blood Pressure, 2010). A second effect that obesity can have on the heart is diabetes mellitus. Diabetes is a disorder of the metabolism where the glucose produced from the breakdown of food is no effectively absorbed into the cells for fuel. Diabetes is characterised by an inadequate production of the hormone called insulin which is produced in the pancreas and must be present to allow glucose to enter the cells (Goldberg, 2014). When insulin production is low the glucose remains in the blood and has many effects, such as increasing the susceptibility to infection (Foss Farine, 2013). The long term effects of low insulin and high glucose levels in the blood include atherosclerosis, which is an increase in deposits of fatty materials on the insides of the blood vessel walls (Goldberg, 2014). These deposits affect blood flow by reducing the diameter of the blood vessels and raising blood pressure, increasing the chance of clogging and hardening of blood vessels (Goldberg, 2014). Relevant tests: There are many tests which can help determine if a patient has heart failure or is at risk, such as; checking blood pressure, chest x-rays, blood tests, 12-lead electrocardiogram and respiratory function tests. Checking blood pressure regularly is part of a standard visit to the doctor or nurse, because it helps to establish a pattern of high, normal or low blood pressure. Long term high blood pressure has been linked to heart strain, and in conjunction with other health issues such as atherosclerosis can result in heart failure. (Heart Foundation, Blood Pressure, 2010). Another test which can contribute to the diagnosis of heart failure is a chest x-ray. Chest x-rays may be performed to look for signs of a pulmonary oedema which can cause symptoms such as S.O.B and paroxysmal nocturnal dyspnoea (Butler, 2012). A pulmonary oedema is commonly caused by a disrupted flow of blood to and from the heart. Respiratory function tests are also performed, to exclude respiratory causes for dyspnoea, such as asthma and chronic obstructive pulmonary disease (COPD) (Butler, 2012). Another direct test of the heart is via a 12-lead electrocardiogram (ECG), the results of an ECG may show evidence of left or right ventricular hypertrophy, CHD, or arrhythmias commonly associated with heart failure such as atrial fibrillation (Butler, 2012). If no abnormality is present then the patient is unlikely to have heart failure (Nicholson, 2014). Further tests for signs of heart failure include blood tests for glucose (Butler, 2012; Nicholson, 2014). Checking glucose levels can be performed at home and is a vital component in the management of diabetes because if the blood glucose level remains high it can lead to atherosclerosis, and later, heart failure. High glucose levels are managed by first testing the blood then administering the appropriate amount of insulin to help absorption of the glucose into the cells and thus lower the blood glucose levels. Treatment strategy: Education on self-management strategies is a vital aspect of patient empowerment and care both at hospital and in their own home (Cockayne, Pattenden, Worthy, Richardson, lewin, 2014). Heart failure patients require education how they can manage their symptoms and to ensure they can recognise the warning sign associated with acute situations (Nicholson, 2014). Patient education commonly includes information on how to maintain good control of comorbid conditions such as diabetes. Control of diabetes at home begins with the monitoring blood glucose levels and commonly results in injecting oneself with insulin (Goldberg, 2014). Cockayne et al. (2014) state that ensuring patients understand the importance of adhering to the medication regime designed for their optimal health is a vital part of patient education. Another important aspect of patient education and self-management is providing an explanation on how to improve health habits and adopt a healthier lifestyle (Nicholson, 2014). The most commonly required lifestyle change to improve health outlooks for patients is to advise that they limit any consumption of alcohol and tobacco smoke as both produce detrimental effects on the heart, such as, causing pulmonary blockages and narrowing of airways, which will affect the oxygen supply to the blood, tissues and organs (Nicholson, 2014). Other important lifestyle changes according to Nicholson (2014) and Butler (2012) include advice on losing weight if the patient is obese, because obesity results in long, narrow blood vessels and high blood pressure which increases the patient’s risk of heart failure. The management of weight for patients with heart failure includes recommendations for specific dietary changes such as a low sodium intake or a low refined sugar intake (Butler, 2012). It may also include guidelines for increased daily exercise which is shown to have positive effects on heart failure symptoms according to Nicholson. Butler (2012) states that for women there is another important lifestyle factor to consider in the self-management of heart failure symptoms, the use of contraception. Contraception is important for women who experience heart failure and its symptoms because if a woman with heart failure were to become pregnant it would increase her risk of heart failure and morbidity during pregnancy and birth. The use of pharmacology in the management and treatment of heart failure symptoms is multifaceted. The use of angiotensin-converting enzyme (ACE) inhibitors is said to be one of the most valuable drug therapies in heart failure according to Butler and is intended to decrease the effects of compensatory mechanisms which are maladaptive so as to improve heart failure symptoms and increase the rate of survival, particularly when taken in conjunction with beta-blockers. Beta-blockers work by reducing heart rate and the myocardial oxygen demand (Nicholson, 2014). The use of ACE inhibitors means that it is important to closely monitor the blood chemistry of the patient, and that the side effects are commonly limited to a dry, persistent cough (Butler, 2012). If the patient cannot tolerate ACE inhibitors due to the dry, persistent cough then the use of angiotensin-II receptor blockers (ARBs) will be considered as this drug has similar properties to the ACE inhibitor and will also require th e monitoring of blood chemistry. (Butler, 2012). Other pharmacological treatments include the use of vasodilators and diuretics. Vasodilators are used to improve cardiac output and often used in cases of heart failure where the patient cannot tolerate ACE inhibitors or ARBs (Butler, 2012). Diuretics are used to increase fluid loss in order to reduce the size and occurrence of peripheral oedemas and pulmonary oedemas, resulting in a reduced level of breathlessness (Nicholson, 2014). The last treatment option to be discussed here is the use of device therapy. Device therapy as stated by Butler (2012) refers to an implantable cardiac defibrillator (ICD) and a biventricular pacemaker. Biventricular pacemakers are implanted to restore ventricular synchrony and reduce symptoms in the event ventricular failure. ICDs on the other hand addresses the problem of cardiac death by delivering an electric shock to the heart to restore normal rhythm and function. In conclusion, heart failure is a complex and multifaceted health problem which encompasses many heart problems like coronary artery disease, heart attacks and cardiomyopathy. Because heart failure is such a large problem it has many symptoms including S.O.B, fatigue and oedemas, and also many signs like tachycardia and lung crepitation. Each sign and symptom of heart failure is associated with a causal agent or risk factor such as hypertension in relation to obesity and diabetes. Heart failure cannot be cured, however the symptoms can be managed through patient education and self-management, pharmacology, and as a last resort, device therapy. 1 | Page

Impact of the Credit Crunch in the UK

Impact of the Credit Crunch in the UK Factors Influencing the Financial Institutions in the UK With Particular Reference to Credit Crunch A Comparative Study between Barclays and Northern Rock Bank I- Abstract Banks acts as intermediaries between surplus units depositing funds and investors or individuals seeking capital for investments. Thus, banks role is important in maintaining the flow of fund between these different parties. Banks like any other profit maximising firms are influenced by various factors that represent risks or opportunities. Therefore, banks business decisions are founded on aspects such as confidence in the market, the level of risks, the state of the economy, and their competitive strength. Regulation is essential for assuring compliance and integrity in the financial system, but rigid rules stifles the dynamicity of the banking industry and the financial sector as whole. Moreover, Central Bank role as a lender of last resort can rise the issue moral hazard by helping imprudent banks, however because banks are financial intermediaries, the impact of bank failure can have a detrimental effect on the financial system (systemic risk), and also on clients and customers, therefore bank supervision is vital due to their sensitive important role and their extensive impact. Furthermore, the development of events in the US financial market particularly the high default rate of subprime mortgage market led to a decrease in demand for tradable securities. This has affected confidence in the US and the global financial market, and consequently some financial institutions and banks such as northern rock in the UK faced difficulties in obtaining the necessary funds to maintain the business operation and remain solvent due to lack of short term liquidity. However, other banks faced similar difficulties but are using various methods to improve their balance sheets to overcome the current credit crisis. Moreover, governments and regulatory bodies are all taking the necessary measure to stimulate the market and tackle the core sources of the current credit crisis. II- Introduction Sustained economic development is often linked to efficient management of fund that is used to finance investments, which are projected to further create more wealth and opportunities for states, corporate and individual investors. Banks acts as intermediaries between surplus units depositing funds and investors seeking capital for investments. Thus, banks role is fundamental in maintaining the flow of fund between these different parties. Furthermore, the stability of financial and banking system is vital for the sustainability of economic growth and the preserve of investors confidence. Banks like any other profit maximising firms are influenced by various factors, these includes internal and external factors, which represent risks or advantages. Therefore, banks decisions are based on elements such as confidence in the market, the measurement and management of risks, the state of the economy, and their competitive power and market share. This study will look onto various factors influencing the financial institutions in the UK, with particular reference to Credit Crunch. This literature will comprise the banks management of risks, the role of authorities regulating and supervising the financial system, and explore the regulation of the banking industry and the financial system as a whole, in addition of the effect of regulation on banks performances. The analysis will include a comparative study between Barclays and Northern Rock Bank, taking into accounts the differences in their structure, size, as well as their reaction to changes in global financial markets. Furthermore, the Research will examine the fast moving global effect of the credit crunch; discuss the two banks business model, and explore their activities and behaviours. The study will also investigate the two banks high exposure to credit risks arising from risky investments, highlight the consequences of the heavy reliance on money market, and the use of securitisation for liquidity sources. IV- Methodology The research objective is to investigate the various factors that influence financial institutions in the UK, notably the banking industry. This research was based mainly on secondary research, the gathered data and information was sufficient for this research topic. However, sensitive data regarding the value of risk were not disclosed in both banks publication, such data is useful for the researcher to scrutinise banks estimation of risk and how realistic are the projections. Nevertheless, information about estimation of risks may be obtained directly from banks for further analysis of this specified area of banks management of risk. Research material relevant to the topic was collected from various academic sources; this is to explore issues and arguments regarding the regulation and supervision of the banking system. The two banks internet site was used to gather the background information along with the financial statements of the last six years, which were used in the research analysis to perform the comparison between Barclays and Northern Rock bank business strategies and financial performance. Publications from the Bank of England website were collected to study the central bank regulation and the management of the UK banking system, in addition to the historical data regarding interest, LOBOR, and inflation rate changes. Furthermore, articles from the Financial Services Authority (FSA) were gathered to study the role of the organisation and its contribution in supervising and stabilising the UK financial system. Recent publications from the Bank of International Settlement (BIS) were collected to study the role, the objectives and the effect of Basel directives on banks. Besides research the progress of current Basel II implementation along with the development of new requirements arising from the present credit crunch. Recent newspaper articles and various other media sources were gathered to collect the latest information regarding the development of the present credit crunch and its effect on banking industry, these includes sources such as BBC business, yahoo finance and the Financial Times website, and follow recent actions of regulators and banks management of the current crisis. Moreover, data from the two banks financial statements was collected to perform the Gap Analysis using Microsoft excel package to conduct a series of calculations. Other methods could have been used to assess bank risks such as value at risk (VaR) using regression analysis by utilising a computer package such as Microsoft Excel. The regression result will determine the degree of risk that the researched banks possess in their portfolio. However, the banks seldom disclose such sensitive information in published financial statements. This is to avoid adverse reaction by investors and credit rating agencies, which could therefore affect the banks stock prices, their reputation and confidence in the capital market. V- Literature review (Part I): The nature of banking The term bank can be applied to a wide range of financial institutions, from large banks to smallest mutually owned building society in the UK. The provision of deposit and loan distinguishes Banks from other financial institutions. Deposits products supply money on demand or following time notice. Deposits are liabilities for banks, thus must be well managed if banks want to make profit. Similarly, banks manage assets created through lending. Therefore, Banks main activity is being an intermediary between depositors and borrowers. Other non banks financial institutions, such as building societies and stockbrokers, also act as intermediaries; however it is the provision of loans and taking of deposits that distinguishes banks, though many banks provide various other financial services. 1) Management of risks in banking The fact is that bankers are in the business of managing risk. Pure and simple, that is the business of banking. (Walter Winston, former CEO of Citibank; the Economist, 10 April 1993). Banks, like all profit maximising firms, have to deal with macroeconomic risks, such as recession, inflation level, as well as other micro economic risks including political pressure, commercial breakdown of core customers or suppliers, natural disaster, in addition to the emergence of new competitive threats. From a finance theory viewpoint, Bank risk management is primarily composed of four main balance sheet risks, which includes liquidity risk, interest rate risk, credit risk, and capital risk (Hempel et al, 1989). Credit risk has been recognised as the principal risk in its effect on bank performance (Sinkey, 1992, p. 279) and bank failure (Spadaford, 1988). The primary reason why the correct management of credit risk is essential is because banks have restricted ability to absorb loan losses. Generally, the ability of a bank to absorb a loan loss is originated firstly from generated income of other profitable loans, and secondly by bank own capital. 2) Factors influencing financial institutions Banks and other profit maximising firms are influenced by various factors; financial institutions in particular are susceptible to a range of changes that may affect their projected growth. Some of these changes are internal changes, this occurs subsequent to restructuring program that a bank adopt following an expansion strategy such as in mergers and acquisitions or as a defensive strategy to remain competitive and maintain market share and fight competitive predators from acquiring the bank. Moreover, there are other external factors that can influence financial institutions, these includes a countys government monetary policy, the economic condition, the financial stability and the level of confidence in the market, the inflation rate, in addition to other risks such as credit and market risks. There are a range of risks that a bank may encounter, these includes the followings: a) Credit risk and counterparty risk: counterparty risk refers to the risks that after the creation of two parties contract, one party will renege the terms of the contract, while credit risk is the risk that a loan or an asset becomes lost due to default. b) Liquidity or funding risk: these are similar terms that refer to the risk of shortage of liquidity for maintaining operational commitments, that is the ability for the bank to cover its liabilities at due date. A shortage of sufficient liquid assets is often the trigger of financial distress, as it is increasingly difficult for the bank to obtain funds from the wholesale markets. Thus funding risk is the inability for the bank to maintain its daily operations. c) Market or price risk: this type of risk refers to the risk linked to over the counter instruments or traded stocks in a non liquid market, such as equities and bonds. Thus if a bank hold these items in its portfolio, then it is vulnerable to market or price risk, this is the risk that the price of these items is unstable, which is caused by systematic (movement of prices in all traded market instruments, for instance due to changes in economic policy) or specific market risks (the movement of a particular instrument is opposite to the rest of similar instruments, for example, this may be caused by unfavourable information about the issuer of that instrument). d) Interest rate risk: this is similar to price risk, because interest rate is price of money, it represent the opportunity cost of keeping money. This occurs because of interest rate mismatches between assets and liabilities, which differ in volume and maturity arising from the banks performing asset transformation. e) Capital or gearing risk: because banks are highly leveraged firms, they have to set aside some capital to cover the losses. The size of capital is proportional to the level of risk taken by the banks. Basel risk asset ratio principle requires banks to hold up to 8%. Besides, settlement or payments risk. This is when one party in the contract deliver assets or makes payment in advance, which creates exposure to potential loss. Furthermore, operational risk refers to risks from human capital, legal risks such as law suits, fraud, and physical capital. While sovereign and political risk refers to the risk that a government default on its debt obligation to a bank. Moreover, financial regulators has identified three main risks linked to banks, these includes market risks such as risks from exchange rates, interest rates, operational risk, commodity and equity prices. 3) The Asset-Liability Management (ALM) technique Because the fundamental and the primary activity of a bank is intermediation between surplus units that makes deposits and those that seek capital, which acquire fund from the bank, thus this payment system gives the bank the role of intermediation , where the intermediation is key activity, risk management is founded principally on a sound asset liability management (ALM). Furthermore, the ALM is a technique practiced by banks to effectively manage their risks, which was largely utilised by banks in the post war period up to the 1980s. The ALM method was the main tool used to manage banks books, it is essential that the bank maintain its assets and liabilities under control to minimise risks and remain solvent. Besides, banks are keeping their managers updated with newer techniques and skills to maintain their efficiency and competitiveness for the future, for instance, ALMA is an association that comprise around 40 financial institutions, which are international and local banking groups and building societies, mostly UK and Irish. However it is growing its membership and links around Europe. Its objective is to offer an informal and inclusive forum regarding the balance sheet management issues (Byrne, J. 2004). Due to the development of banking activities, innovative instrument became increasingly used by banks to manage their assets such as off balance sheet instruments, where banks moved from interest earning income products to non-interest income sources, thus this required that banks risk management should adopt newer techniques other then just the ALM to includes the risks originating from the off balance sheet instruments. Moreover, one of the new methods included in managing market and then credit risks is the Value at Risk (VaR), which involves giving an estimate of losses arising from the volatility of banks assets. 4) Credit Culture A recent research conducted by the Australian institute of bankers on the issue of Improving Asset Quality (Brice, 1992), which focused on the significance of credit culture. The great emphasis on credit culture was due to its influence on bank performance and in some occurrences bank failure ( Spadaford (1988) and Brice (1992)). Spadaford (1988) stated in his study of 162 bank failures in the United States that the analysis showed that 98% of bank failure occurred due to asset quality problems, among these problems are poor management of loan policy, inadequate systems to ensure compliance with internal rules and procedures, and the lack of supervision on senior and key management members in the organisation. McKinley (1991) has defined four main cultures that influence bank performance. predominantly the immediate performance-driven, which emphasis on earnings targets, followed by Market share/production-driven that focuses on being the biggest with greater production volume, along with Values-driven that balances between credit quality and generated income. In addition to the Unfocused (current priority-driven) bank, such bank lacks vision and appropriate strategy often set short term targets which consequently lead to unsuccessful ventures. VI- Literature review (Part II): Banks regulation The base of regulating financial institutions is founded on three broad frameworks. Primarily, the consumer protection argument, this is based on the notion that investors and depositors cannot be demanded to perform risk assessment of financial institutions they deal with, nor monitor standard of service or performance of these institutions. The consumer protection underlying principle is based on three types of regulation; firstly, compensation schemes created to repay all or part of losses caused by the insolvency of financial institutions; secondly, rules and regulations such as capital adequacy requirements designed to prevent insolvency; and lastly promote fairness in business or market practices by setting rules and standards. The latter regulation reveals market imperfections arising from principle agent problems, asymmetric information, and the issue of determining the true value of financial products or services, which are established well after the transaction or contract was formed (Dale, R and Wolfe, S. 1998). Furthermore, there are other concerns associated with consumer protection rationale. The provision of compensation to depositors and investors for losses sustained from the insolvency of financial institutions will further encourage these institutions to pursue risky investment decisions, thus there will be minimal or no incentive for prudence. This indicates that risky firms will be able to attract trade with identical terms and ease as prudent institutions, thus affecting financial market standards and discipline, and rising potential insolvency incidences. Therefore, the resulting losses must be covered by the deposit insurance scheme, investor protection fund, or in some cases by the tax payer. Thus, prudential controls on financial institutions are essential to minimise losses and to balance the regulatory incentives with the excessive risk-taking. The third aim of financial regulation is to promote integrity of markets, encompassing various issues such as market manipulation, fraud, transparency, and fairness; market integrity emphasis on organising the market as whole beyond just the relationship between financial firms and their consumers. Supervisors implementing the financial regulation consider systematic risk as the factor that causes great concerns. That is the risk that failure of one or more distressed financial institution could spread and cause a contagion effect, which could cause the collapse of other prudent institutions. It is their vulnerability to the contagion effect that single out financial institutions from other non financial firms. 1) Targets of regulation The major objectives of Financial regulation is to set guidelines for the activities of Banks, insurance companies, investment firms, exchanges, and fund management companies. The diverse principles for financial regulation mentioned above vary in their relation to these various institutions of the financial services sector. Banks are distinguished by what is referred to as short- term and unsecured value certain liabilities (deposits) and illiquid value-uncertain assets (loans). Banks conforms to deposits insurance and other type of consumer protection, partly because banks balance sheet consists of a variety of complex instruments and depositors are not capable to measure the riskiness of their deposits. However, depositor protection creates moral hazard problem. Furthermore, banks regulation focuses more on systemic risk. That is the possibility of a bank run that can spread to a number of banks and trigger a wider instability in the financial system. According to this notion, bank runs are the result of action by depositors retrieving their funds in response to amounting fear and uncertainty of the bank future arising from bank asset losses that could render it insolvent. Due to potential risk of losing all or some of their assets, depositors tend to make a run when initial signs indicate some troubles. Moreover, recent research found that the occurrence of a bank run can not be entirety explained by the decline of banks underlying assets (LaWare, J.1991.p34), (Diamond and Dybvig, 1983).The emphasis is on a banks maturity transformation notably the transfer of illiquid assets (bank loans) into liquid claims (bank deposits), taking into account that the banks loan portfolio substantially decline in value in an event of liquidation than on going concern. What triggers a rational bank run is that the uncertainty and the higher probability that the loan portfolio liquid value is less than the value of liquid deposits. This notion demonstrates how bank runs can possibly arise and affect even healthy banks. Thus distressed bank have to liberate its assets at liquidation value, therefore leading to possible insolvency. 2) Techniques of regulation While procedures of conduct of business regulation do not differ among various types of institutions, but in terms of prudential regulation there are fundamental differences that reveal the distinctive risk features of banks, insurance firms, and investment companies. Because bank failure has a greater effect on the whole market, and can create systemic crisis, governments and central banks have set bank regulation for creating extra protection in provision of extra fund by setting the lender of last resorts facilities, and deposit protection, however, these facilities creates moral hazard. Moreover, the deposit protection fund may exceeds the available protection from deposits insurance schemes, demonstrating policymakers greater emphasis for protecting the banking institutions rather then just depositors, as well showing the regulatory objectives of sustaining the banking system, while preventive regulation focuses more on tackling excessive risk taking by setting capital adequacy requirements for assets. Institutional regulation varies between states; in the UK for instance there was a single mega regulator, all regulation is institutional, each group/ institution have a diversified activity which all work under a single agency that overlook the supervision. Alternatively, in a system of multiple regulatory agencies specialised by duty, a fixed institutional regulation is unattainable due to the fact that these agencies are divers in functions, which calls for the appointment of a lead regulator for diversified groups (Taylor, M. 1995). 3) Regulation of the financial system By tradition banks are providers of loans among other services to firms and individual investors, temporary banks falls in deficits when their expenditure exceeds receipts; however banks generally adjust their liquidity position by using capital or wholesale market. Problems occur when banks capital is misused in funding high risk investments; this is often the consequences of bad governance by senior management in controlling the banks assets or it is the outcome of a contagion effect resulting from systemic risk. Moreover, the central bank controls and monitor commercial banks activities and set rules to regulate the banking system. This is to create stability and to promote confidence in financial market, which are vital elements in maintaining steady economic growth. 4) Bank failure Regulation of banks must be explored in context of bank failure. As any substantial problem produces the need for the introduction of changes in the regulatory framework, because the regulators attempt to correct any loophole in the system. Major bank failures in the history of banking occurred in the US in the year 1929. At that period there were 25,000 operating banks, however by 1934 the number had reduced to 14,000. These incidences consequently led to the implementation of more restrictive bank rules, such as single state operations, which until recently remained the feature of the US banking system. The subsequent major bank failure was the fringe banking crisis in the UK in the year 1973. 5) Reasons for regulating banks The principle reason is the systemic risk, because the financial system is susceptible to level of confidence, therefore external regulation is essential in maintaining the stability and reduces further volatility. The second reason represents the social cost that a failure of bank causes, which have a greater impact then a failure an ordinary firm. The insolvency of a firm affects the shareholders, while the failure of a bank will have a greater number of affected customers (depositors), which could also be spread across larger geographical locations. As well as the effect it will have on providing savings for potential investors which will have a detrimental impact on the economic growth. The third reason is the possible lack of knowledge by the public, it is suggested that they lack the necessary background information to distinguish between safe and risky investments partly due to asymmetric information because depositors do not have access to the same information available for banks. Thus comprehensive risk assessments necessitate additional information to that included in financial reports. Hence for this particular reason regulators had introduced depositor protection. Although the above arguments support regulation, however there should be some caution on the use of excessive control over banks. It is primarily the issue of sustained cost in terms of resources on banks and the regulators. Because the central bank has to set teams of experts to perform the prudential control, likewise banks have to employ skilled resources capable to produce the necessary required returns to the regulator. Such costs can be large, thus it is a matter of cost benefit analysis to establish whether the gain of applying prudential control exceeds the incurred costs. Other possible dangers of excessive regulation are the fall of competition, increase in costs and the diminishing pace of financial innovation and development. Furthermore, heavy regulation on a particular centre may lead to the migration of the activities to locations that have lenient regulation, which has been the principle factor in the development of offshore banking centres that led to the need for a global regulation system for international banks, which is known as a level playing field. 6) The supervision of the financial system in the UK The above arguments about prudential regulation are based on banks but it can also be applied on various other financial institutions. Furthermore, the current UK financial regulation system utilise the same measures in authorising and supervising financial institutions without a distinction between insurance firms, building societies, or banks. The FSA is the principle regulator of the financial system in the UK. The FSA was established in 1997, succeeding the Securities and Investments Board (SIB), which was supervising the investment industry. However, the FSA has progressively thought to become the main controller responsible for regulating insurance and investment industry, building societies, and banks. In addition to regulating financial exchanges such as Euronext.liffe and the Stock exchange besides clearing houses, along with other functions such as the responsibility of regulating the access of companies to Official List in cooperation with the UK Listing Authority. The initial development occurred in 1998, when the Bank of England transferred its responsibility of regulation and supervision of banking to the FSA, which was succeeded with the passing of the Financial Services and Markets Act (FSMA) 2000 that provided the FSA with full power as the main regulator. The FSMA requires the FSA to attain the following objectives: Promote public awareness of financial system Maintain confidence in the UK financial market Secure consumer protection Reduce financial crime. 7) The FSA approach to supervision The FSA approach to supervision is risk based; the primary phase is to assess the risks associated with four objectives above. The FSA attain this through gathering information from various sources including customers and supervision of firms. The secondary phase is risk weighing and estimating impact, by giving each risk the probability of occurring, thus giving it a score or value. Thus firms with high magnitude impact require greater supervision. This is to reduce systemic risk and consumer losses. However, firms that possess highly sophisticated and effective risk assessment systems require less supervision by the FSA. Finally, after the risks are identified, assessed and weighted, the FSA select the appropriate measures to respond using various tools, which can be summed as follows: Those aimed to influence the behaviour of consumers, operators, and the industry Those aimed to influence the behaviour particular firms. The first category encompasses consumer education, the discloser of information, and compensation method, while the second category includes the provision of authorisations to firms and discipline, in addition to reimbursement of losses. 8) Capital adequacy (Basel Capital Accord, 1988). Liquidity is essential for any firm to maintain its daily operation, whereas solvency refers to the ability of a bank to meet its commitments in terms of liabilities at due time. However, there is a distinction between liquidity and solvency. There is a general understanding that if a bank is thought to remain solvent then it should be able to borrow fund from open market to meet its short term liquidity requirements. Likewise, the presence of liquidity problems that cannot be resolved through the wholesale market suggests that other lenders believe that the risk of insolvency of that particular bank is great. Furthermore, if a bank struggle to find short term funds in the markets, it will face difficulties in paying its claims. Therefore the Bank of England and the FSA requires banks to efficiently managing their liquidity as a principal policy element of reducing the risk of insolvency. The Basel committee on Banking Supervision has introduced Basel Capital Accord II; it included new amendments to the assessment of capital adequacy of banks. This new approach was ought to be implemented in year 2006, which contains three pillars: Minimum capital requirements Supervisory review of capital adequacy Public disclosure. Basel II accord focuses on credit risk and market risk. In pillar 1, the treatment of market risk was not altered but changes were made on the treatment of credit risk notably operational risk. The bank for international settlement and the Basel committee on banking supervision have founded the financial stability institute (FSI) to assist central banks across the world to improve their financial systems. The new Basel II requirements set challenges on banks to develop and increase efficiency on their capital management. In this section, there is a discussion of the effect of Basel II on Banks in Europe and North America, and how the new directives are going to improve the cohesion of trade between the International Banks. Furthermore, this study will examine the banks resource capability to meet Basel II requirements, and discuss the impact and the implementation of the proposed guidelines. The Basel II framework is a tool that international financial institutions have created to be used by banks around the world as a common standard. The principle of Basel II is that banks are required to hold in reserve certain level of capital as a protection to maintain bank operation when making losses. It promotes transparency of banks activities and encourages efficient management of capital. It is estimated to total 8% of bank assets. The Basel II framework has set standards for banks in managing their capital and requires the discloser of information to detect any risks. The guidelines promote efficien Impact of the Credit Crunch in the UK Impact of the Credit Crunch in the UK Factors Influencing the Financial Institutions in the UK With Particular Reference to Credit Crunch A Comparative Study between Barclays and Northern Rock Bank I- Abstract Banks acts as intermediaries between surplus units depositing funds and investors or individuals seeking capital for investments. Thus, banks role is important in maintaining the flow of fund between these different parties. Banks like any other profit maximising firms are influenced by various factors that represent risks or opportunities. Therefore, banks business decisions are founded on aspects such as confidence in the market, the level of risks, the state of the economy, and their competitive strength. Regulation is essential for assuring compliance and integrity in the financial system, but rigid rules stifles the dynamicity of the banking industry and the financial sector as whole. Moreover, Central Bank role as a lender of last resort can rise the issue moral hazard by helping imprudent banks, however because banks are financial intermediaries, the impact of bank failure can have a detrimental effect on the financial system (systemic risk), and also on clients and customers, therefore bank supervision is vital due to their sensitive important role and their extensive impact. Furthermore, the development of events in the US financial market particularly the high default rate of subprime mortgage market led to a decrease in demand for tradable securities. This has affected confidence in the US and the global financial market, and consequently some financial institutions and banks such as northern rock in the UK faced difficulties in obtaining the necessary funds to maintain the business operation and remain solvent due to lack of short term liquidity. However, other banks faced similar difficulties but are using various methods to improve their balance sheets to overcome the current credit crisis. Moreover, governments and regulatory bodies are all taking the necessary measure to stimulate the market and tackle the core sources of the current credit crisis. II- Introduction Sustained economic development is often linked to efficient management of fund that is used to finance investments, which are projected to further create more wealth and opportunities for states, corporate and individual investors. Banks acts as intermediaries between surplus units depositing funds and investors seeking capital for investments. Thus, banks role is fundamental in maintaining the flow of fund between these different parties. Furthermore, the stability of financial and banking system is vital for the sustainability of economic growth and the preserve of investors confidence. Banks like any other profit maximising firms are influenced by various factors, these includes internal and external factors, which represent risks or advantages. Therefore, banks decisions are based on elements such as confidence in the market, the measurement and management of risks, the state of the economy, and their competitive power and market share. This study will look onto various factors influencing the financial institutions in the UK, with particular reference to Credit Crunch. This literature will comprise the banks management of risks, the role of authorities regulating and supervising the financial system, and explore the regulation of the banking industry and the financial system as a whole, in addition of the effect of regulation on banks performances. The analysis will include a comparative study between Barclays and Northern Rock Bank, taking into accounts the differences in their structure, size, as well as their reaction to changes in global financial markets. Furthermore, the Research will examine the fast moving global effect of the credit crunch; discuss the two banks business model, and explore their activities and behaviours. The study will also investigate the two banks high exposure to credit risks arising from risky investments, highlight the consequences of the heavy reliance on money market, and the use of securitisation for liquidity sources. IV- Methodology The research objective is to investigate the various factors that influence financial institutions in the UK, notably the banking industry. This research was based mainly on secondary research, the gathered data and information was sufficient for this research topic. However, sensitive data regarding the value of risk were not disclosed in both banks publication, such data is useful for the researcher to scrutinise banks estimation of risk and how realistic are the projections. Nevertheless, information about estimation of risks may be obtained directly from banks for further analysis of this specified area of banks management of risk. Research material relevant to the topic was collected from various academic sources; this is to explore issues and arguments regarding the regulation and supervision of the banking system. The two banks internet site was used to gather the background information along with the financial statements of the last six years, which were used in the research analysis to perform the comparison between Barclays and Northern Rock bank business strategies and financial performance. Publications from the Bank of England website were collected to study the central bank regulation and the management of the UK banking system, in addition to the historical data regarding interest, LOBOR, and inflation rate changes. Furthermore, articles from the Financial Services Authority (FSA) were gathered to study the role of the organisation and its contribution in supervising and stabilising the UK financial system. Recent publications from the Bank of International Settlement (BIS) were collected to study the role, the objectives and the effect of Basel directives on banks. Besides research the progress of current Basel II implementation along with the development of new requirements arising from the present credit crunch. Recent newspaper articles and various other media sources were gathered to collect the latest information regarding the development of the present credit crunch and its effect on banking industry, these includes sources such as BBC business, yahoo finance and the Financial Times website, and follow recent actions of regulators and banks management of the current crisis. Moreover, data from the two banks financial statements was collected to perform the Gap Analysis using Microsoft excel package to conduct a series of calculations. Other methods could have been used to assess bank risks such as value at risk (VaR) using regression analysis by utilising a computer package such as Microsoft Excel. The regression result will determine the degree of risk that the researched banks possess in their portfolio. However, the banks seldom disclose such sensitive information in published financial statements. This is to avoid adverse reaction by investors and credit rating agencies, which could therefore affect the banks stock prices, their reputation and confidence in the capital market. V- Literature review (Part I): The nature of banking The term bank can be applied to a wide range of financial institutions, from large banks to smallest mutually owned building society in the UK. The provision of deposit and loan distinguishes Banks from other financial institutions. Deposits products supply money on demand or following time notice. Deposits are liabilities for banks, thus must be well managed if banks want to make profit. Similarly, banks manage assets created through lending. Therefore, Banks main activity is being an intermediary between depositors and borrowers. Other non banks financial institutions, such as building societies and stockbrokers, also act as intermediaries; however it is the provision of loans and taking of deposits that distinguishes banks, though many banks provide various other financial services. 1) Management of risks in banking The fact is that bankers are in the business of managing risk. Pure and simple, that is the business of banking. (Walter Winston, former CEO of Citibank; the Economist, 10 April 1993). Banks, like all profit maximising firms, have to deal with macroeconomic risks, such as recession, inflation level, as well as other micro economic risks including political pressure, commercial breakdown of core customers or suppliers, natural disaster, in addition to the emergence of new competitive threats. From a finance theory viewpoint, Bank risk management is primarily composed of four main balance sheet risks, which includes liquidity risk, interest rate risk, credit risk, and capital risk (Hempel et al, 1989). Credit risk has been recognised as the principal risk in its effect on bank performance (Sinkey, 1992, p. 279) and bank failure (Spadaford, 1988). The primary reason why the correct management of credit risk is essential is because banks have restricted ability to absorb loan losses. Generally, the ability of a bank to absorb a loan loss is originated firstly from generated income of other profitable loans, and secondly by bank own capital. 2) Factors influencing financial institutions Banks and other profit maximising firms are influenced by various factors; financial institutions in particular are susceptible to a range of changes that may affect their projected growth. Some of these changes are internal changes, this occurs subsequent to restructuring program that a bank adopt following an expansion strategy such as in mergers and acquisitions or as a defensive strategy to remain competitive and maintain market share and fight competitive predators from acquiring the bank. Moreover, there are other external factors that can influence financial institutions, these includes a countys government monetary policy, the economic condition, the financial stability and the level of confidence in the market, the inflation rate, in addition to other risks such as credit and market risks. There are a range of risks that a bank may encounter, these includes the followings: a) Credit risk and counterparty risk: counterparty risk refers to the risks that after the creation of two parties contract, one party will renege the terms of the contract, while credit risk is the risk that a loan or an asset becomes lost due to default. b) Liquidity or funding risk: these are similar terms that refer to the risk of shortage of liquidity for maintaining operational commitments, that is the ability for the bank to cover its liabilities at due date. A shortage of sufficient liquid assets is often the trigger of financial distress, as it is increasingly difficult for the bank to obtain funds from the wholesale markets. Thus funding risk is the inability for the bank to maintain its daily operations. c) Market or price risk: this type of risk refers to the risk linked to over the counter instruments or traded stocks in a non liquid market, such as equities and bonds. Thus if a bank hold these items in its portfolio, then it is vulnerable to market or price risk, this is the risk that the price of these items is unstable, which is caused by systematic (movement of prices in all traded market instruments, for instance due to changes in economic policy) or specific market risks (the movement of a particular instrument is opposite to the rest of similar instruments, for example, this may be caused by unfavourable information about the issuer of that instrument). d) Interest rate risk: this is similar to price risk, because interest rate is price of money, it represent the opportunity cost of keeping money. This occurs because of interest rate mismatches between assets and liabilities, which differ in volume and maturity arising from the banks performing asset transformation. e) Capital or gearing risk: because banks are highly leveraged firms, they have to set aside some capital to cover the losses. The size of capital is proportional to the level of risk taken by the banks. Basel risk asset ratio principle requires banks to hold up to 8%. Besides, settlement or payments risk. This is when one party in the contract deliver assets or makes payment in advance, which creates exposure to potential loss. Furthermore, operational risk refers to risks from human capital, legal risks such as law suits, fraud, and physical capital. While sovereign and political risk refers to the risk that a government default on its debt obligation to a bank. Moreover, financial regulators has identified three main risks linked to banks, these includes market risks such as risks from exchange rates, interest rates, operational risk, commodity and equity prices. 3) The Asset-Liability Management (ALM) technique Because the fundamental and the primary activity of a bank is intermediation between surplus units that makes deposits and those that seek capital, which acquire fund from the bank, thus this payment system gives the bank the role of intermediation , where the intermediation is key activity, risk management is founded principally on a sound asset liability management (ALM). Furthermore, the ALM is a technique practiced by banks to effectively manage their risks, which was largely utilised by banks in the post war period up to the 1980s. The ALM method was the main tool used to manage banks books, it is essential that the bank maintain its assets and liabilities under control to minimise risks and remain solvent. Besides, banks are keeping their managers updated with newer techniques and skills to maintain their efficiency and competitiveness for the future, for instance, ALMA is an association that comprise around 40 financial institutions, which are international and local banking groups and building societies, mostly UK and Irish. However it is growing its membership and links around Europe. Its objective is to offer an informal and inclusive forum regarding the balance sheet management issues (Byrne, J. 2004). Due to the development of banking activities, innovative instrument became increasingly used by banks to manage their assets such as off balance sheet instruments, where banks moved from interest earning income products to non-interest income sources, thus this required that banks risk management should adopt newer techniques other then just the ALM to includes the risks originating from the off balance sheet instruments. Moreover, one of the new methods included in managing market and then credit risks is the Value at Risk (VaR), which involves giving an estimate of losses arising from the volatility of banks assets. 4) Credit Culture A recent research conducted by the Australian institute of bankers on the issue of Improving Asset Quality (Brice, 1992), which focused on the significance of credit culture. The great emphasis on credit culture was due to its influence on bank performance and in some occurrences bank failure ( Spadaford (1988) and Brice (1992)). Spadaford (1988) stated in his study of 162 bank failures in the United States that the analysis showed that 98% of bank failure occurred due to asset quality problems, among these problems are poor management of loan policy, inadequate systems to ensure compliance with internal rules and procedures, and the lack of supervision on senior and key management members in the organisation. McKinley (1991) has defined four main cultures that influence bank performance. predominantly the immediate performance-driven, which emphasis on earnings targets, followed by Market share/production-driven that focuses on being the biggest with greater production volume, along with Values-driven that balances between credit quality and generated income. In addition to the Unfocused (current priority-driven) bank, such bank lacks vision and appropriate strategy often set short term targets which consequently lead to unsuccessful ventures. VI- Literature review (Part II): Banks regulation The base of regulating financial institutions is founded on three broad frameworks. Primarily, the consumer protection argument, this is based on the notion that investors and depositors cannot be demanded to perform risk assessment of financial institutions they deal with, nor monitor standard of service or performance of these institutions. The consumer protection underlying principle is based on three types of regulation; firstly, compensation schemes created to repay all or part of losses caused by the insolvency of financial institutions; secondly, rules and regulations such as capital adequacy requirements designed to prevent insolvency; and lastly promote fairness in business or market practices by setting rules and standards. The latter regulation reveals market imperfections arising from principle agent problems, asymmetric information, and the issue of determining the true value of financial products or services, which are established well after the transaction or contract was formed (Dale, R and Wolfe, S. 1998). Furthermore, there are other concerns associated with consumer protection rationale. The provision of compensation to depositors and investors for losses sustained from the insolvency of financial institutions will further encourage these institutions to pursue risky investment decisions, thus there will be minimal or no incentive for prudence. This indicates that risky firms will be able to attract trade with identical terms and ease as prudent institutions, thus affecting financial market standards and discipline, and rising potential insolvency incidences. Therefore, the resulting losses must be covered by the deposit insurance scheme, investor protection fund, or in some cases by the tax payer. Thus, prudential controls on financial institutions are essential to minimise losses and to balance the regulatory incentives with the excessive risk-taking. The third aim of financial regulation is to promote integrity of markets, encompassing various issues such as market manipulation, fraud, transparency, and fairness; market integrity emphasis on organising the market as whole beyond just the relationship between financial firms and their consumers. Supervisors implementing the financial regulation consider systematic risk as the factor that causes great concerns. That is the risk that failure of one or more distressed financial institution could spread and cause a contagion effect, which could cause the collapse of other prudent institutions. It is their vulnerability to the contagion effect that single out financial institutions from other non financial firms. 1) Targets of regulation The major objectives of Financial regulation is to set guidelines for the activities of Banks, insurance companies, investment firms, exchanges, and fund management companies. The diverse principles for financial regulation mentioned above vary in their relation to these various institutions of the financial services sector. Banks are distinguished by what is referred to as short- term and unsecured value certain liabilities (deposits) and illiquid value-uncertain assets (loans). Banks conforms to deposits insurance and other type of consumer protection, partly because banks balance sheet consists of a variety of complex instruments and depositors are not capable to measure the riskiness of their deposits. However, depositor protection creates moral hazard problem. Furthermore, banks regulation focuses more on systemic risk. That is the possibility of a bank run that can spread to a number of banks and trigger a wider instability in the financial system. According to this notion, bank runs are the result of action by depositors retrieving their funds in response to amounting fear and uncertainty of the bank future arising from bank asset losses that could render it insolvent. Due to potential risk of losing all or some of their assets, depositors tend to make a run when initial signs indicate some troubles. Moreover, recent research found that the occurrence of a bank run can not be entirety explained by the decline of banks underlying assets (LaWare, J.1991.p34), (Diamond and Dybvig, 1983).The emphasis is on a banks maturity transformation notably the transfer of illiquid assets (bank loans) into liquid claims (bank deposits), taking into account that the banks loan portfolio substantially decline in value in an event of liquidation than on going concern. What triggers a rational bank run is that the uncertainty and the higher probability that the loan portfolio liquid value is less than the value of liquid deposits. This notion demonstrates how bank runs can possibly arise and affect even healthy banks. Thus distressed bank have to liberate its assets at liquidation value, therefore leading to possible insolvency. 2) Techniques of regulation While procedures of conduct of business regulation do not differ among various types of institutions, but in terms of prudential regulation there are fundamental differences that reveal the distinctive risk features of banks, insurance firms, and investment companies. Because bank failure has a greater effect on the whole market, and can create systemic crisis, governments and central banks have set bank regulation for creating extra protection in provision of extra fund by setting the lender of last resorts facilities, and deposit protection, however, these facilities creates moral hazard. Moreover, the deposit protection fund may exceeds the available protection from deposits insurance schemes, demonstrating policymakers greater emphasis for protecting the banking institutions rather then just depositors, as well showing the regulatory objectives of sustaining the banking system, while preventive regulation focuses more on tackling excessive risk taking by setting capital adequacy requirements for assets. Institutional regulation varies between states; in the UK for instance there was a single mega regulator, all regulation is institutional, each group/ institution have a diversified activity which all work under a single agency that overlook the supervision. Alternatively, in a system of multiple regulatory agencies specialised by duty, a fixed institutional regulation is unattainable due to the fact that these agencies are divers in functions, which calls for the appointment of a lead regulator for diversified groups (Taylor, M. 1995). 3) Regulation of the financial system By tradition banks are providers of loans among other services to firms and individual investors, temporary banks falls in deficits when their expenditure exceeds receipts; however banks generally adjust their liquidity position by using capital or wholesale market. Problems occur when banks capital is misused in funding high risk investments; this is often the consequences of bad governance by senior management in controlling the banks assets or it is the outcome of a contagion effect resulting from systemic risk. Moreover, the central bank controls and monitor commercial banks activities and set rules to regulate the banking system. This is to create stability and to promote confidence in financial market, which are vital elements in maintaining steady economic growth. 4) Bank failure Regulation of banks must be explored in context of bank failure. As any substantial problem produces the need for the introduction of changes in the regulatory framework, because the regulators attempt to correct any loophole in the system. Major bank failures in the history of banking occurred in the US in the year 1929. At that period there were 25,000 operating banks, however by 1934 the number had reduced to 14,000. These incidences consequently led to the implementation of more restrictive bank rules, such as single state operations, which until recently remained the feature of the US banking system. The subsequent major bank failure was the fringe banking crisis in the UK in the year 1973. 5) Reasons for regulating banks The principle reason is the systemic risk, because the financial system is susceptible to level of confidence, therefore external regulation is essential in maintaining the stability and reduces further volatility. The second reason represents the social cost that a failure of bank causes, which have a greater impact then a failure an ordinary firm. The insolvency of a firm affects the shareholders, while the failure of a bank will have a greater number of affected customers (depositors), which could also be spread across larger geographical locations. As well as the effect it will have on providing savings for potential investors which will have a detrimental impact on the economic growth. The third reason is the possible lack of knowledge by the public, it is suggested that they lack the necessary background information to distinguish between safe and risky investments partly due to asymmetric information because depositors do not have access to the same information available for banks. Thus comprehensive risk assessments necessitate additional information to that included in financial reports. Hence for this particular reason regulators had introduced depositor protection. Although the above arguments support regulation, however there should be some caution on the use of excessive control over banks. It is primarily the issue of sustained cost in terms of resources on banks and the regulators. Because the central bank has to set teams of experts to perform the prudential control, likewise banks have to employ skilled resources capable to produce the necessary required returns to the regulator. Such costs can be large, thus it is a matter of cost benefit analysis to establish whether the gain of applying prudential control exceeds the incurred costs. Other possible dangers of excessive regulation are the fall of competition, increase in costs and the diminishing pace of financial innovation and development. Furthermore, heavy regulation on a particular centre may lead to the migration of the activities to locations that have lenient regulation, which has been the principle factor in the development of offshore banking centres that led to the need for a global regulation system for international banks, which is known as a level playing field. 6) The supervision of the financial system in the UK The above arguments about prudential regulation are based on banks but it can also be applied on various other financial institutions. Furthermore, the current UK financial regulation system utilise the same measures in authorising and supervising financial institutions without a distinction between insurance firms, building societies, or banks. The FSA is the principle regulator of the financial system in the UK. The FSA was established in 1997, succeeding the Securities and Investments Board (SIB), which was supervising the investment industry. However, the FSA has progressively thought to become the main controller responsible for regulating insurance and investment industry, building societies, and banks. In addition to regulating financial exchanges such as Euronext.liffe and the Stock exchange besides clearing houses, along with other functions such as the responsibility of regulating the access of companies to Official List in cooperation with the UK Listing Authority. The initial development occurred in 1998, when the Bank of England transferred its responsibility of regulation and supervision of banking to the FSA, which was succeeded with the passing of the Financial Services and Markets Act (FSMA) 2000 that provided the FSA with full power as the main regulator. The FSMA requires the FSA to attain the following objectives: Promote public awareness of financial system Maintain confidence in the UK financial market Secure consumer protection Reduce financial crime. 7) The FSA approach to supervision The FSA approach to supervision is risk based; the primary phase is to assess the risks associated with four objectives above. The FSA attain this through gathering information from various sources including customers and supervision of firms. The secondary phase is risk weighing and estimating impact, by giving each risk the probability of occurring, thus giving it a score or value. Thus firms with high magnitude impact require greater supervision. This is to reduce systemic risk and consumer losses. However, firms that possess highly sophisticated and effective risk assessment systems require less supervision by the FSA. Finally, after the risks are identified, assessed and weighted, the FSA select the appropriate measures to respond using various tools, which can be summed as follows: Those aimed to influence the behaviour of consumers, operators, and the industry Those aimed to influence the behaviour particular firms. The first category encompasses consumer education, the discloser of information, and compensation method, while the second category includes the provision of authorisations to firms and discipline, in addition to reimbursement of losses. 8) Capital adequacy (Basel Capital Accord, 1988). Liquidity is essential for any firm to maintain its daily operation, whereas solvency refers to the ability of a bank to meet its commitments in terms of liabilities at due time. However, there is a distinction between liquidity and solvency. There is a general understanding that if a bank is thought to remain solvent then it should be able to borrow fund from open market to meet its short term liquidity requirements. Likewise, the presence of liquidity problems that cannot be resolved through the wholesale market suggests that other lenders believe that the risk of insolvency of that particular bank is great. Furthermore, if a bank struggle to find short term funds in the markets, it will face difficulties in paying its claims. Therefore the Bank of England and the FSA requires banks to efficiently managing their liquidity as a principal policy element of reducing the risk of insolvency. The Basel committee on Banking Supervision has introduced Basel Capital Accord II; it included new amendments to the assessment of capital adequacy of banks. This new approach was ought to be implemented in year 2006, which contains three pillars: Minimum capital requirements Supervisory review of capital adequacy Public disclosure. Basel II accord focuses on credit risk and market risk. In pillar 1, the treatment of market risk was not altered but changes were made on the treatment of credit risk notably operational risk. The bank for international settlement and the Basel committee on banking supervision have founded the financial stability institute (FSI) to assist central banks across the world to improve their financial systems. The new Basel II requirements set challenges on banks to develop and increase efficiency on their capital management. In this section, there is a discussion of the effect of Basel II on Banks in Europe and North America, and how the new directives are going to improve the cohesion of trade between the International Banks. Furthermore, this study will examine the banks resource capability to meet Basel II requirements, and discuss the impact and the implementation of the proposed guidelines. The Basel II framework is a tool that international financial institutions have created to be used by banks around the world as a common standard. The principle of Basel II is that banks are required to hold in reserve certain level of capital as a protection to maintain bank operation when making losses. It promotes transparency of banks activities and encourages efficient management of capital. It is estimated to total 8% of bank assets. The Basel II framework has set standards for banks in managing their capital and requires the discloser of information to detect any risks. The guidelines promote efficien