Are we moving towards another financial crisis?
Fears that banks would be unable to repay their debts fired the starting gun on the 2008 financial crisis.
These concerns have once again come to the fore. Investors are weary about the resilience of the UK's leading financial institutions in the face of a cocktail of pressures, including an economic slowdown in China, the tumbling oil price and rock-bottom interest rates.
Can UK banks weather the storm?
Much has been made of the measures put in place to make the banking sector more resilient to global economic pressures. Chief among the institutions offering reassurance has been The Bank of England (BoE), which has conducted a series of stress tests to ensure Britain's banking sector can cope with a volley of economic shocks.
In December last year, the BoE declared that all of Britain's biggest lenders had passed the stress tests put in place.
The Governor of the BoE once again underscored the resilience of Britain's banking sector when he announced his quarterly inflation report last week.
He said the recent stress tests assumed a "much more severe shock to Chinese and emerging market growth, sharply higher spikes in financial market volatility and steeper falls in risky asset prices".
Efforts have also been made to protect the general savings of the general public by forcing lenders to hive off their risky investment banks away from their retail banking arms.
What does this mean for the privatisation of Lloyds Banking Group and RBS?
Prolonged turmoil in the markets is bad news for the Government's hopes of selling-off its final stakes in Lloyds Banking Group and RBS. Chancellor George Osborne postponed the sale of the Government's near 10% stake in Lloyds at the end of last month, blaming turbulence in global markets. It is now thought the sale could be halted until after Easter.
But if market turbulence persists, Mr Osborne maybe inclined to push the deadline back even further for both Lloyds and RBS in order to secure a profit for the taxpayer.
So how worried should we be?
While a sharp sell-off of banking stocks is a cause of concern, it may not always mean investors have lost complete confidence in the financial sector. Because banks are central to the ability of companies to borrow money and grow, bank stocks will rise when there is confidence in the market. However, bank stocks will also fall when confidence dips in FTSE 100 companies.
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