This study compares two different banks in United Kingdom (UK) under different risks such as the financial, business and operations risks. The topic presents the management strategy of each bank under particular circumstances. The risks factors being the controlling entity cause various challenges to UK banks. The HSBC and the Royal Bank of Scotland are two of the top banks in UK. These banks are dependent entity for they can only rely their financial standing on the condition of the present liquidity risks at hand. The strength of their management organization is an important tool needed to help reduce risk the possibility of a bank to collapse.
The idea of this paper is taken from the opinions of known business editors who wrote their expectations about the banks financial stability on their journals, magazines and newspapers. It somehow gives the researcher a thought of comparing two banks in terms of their liquidity risk management approaches. The researcher has chosen HSBC and the Royal Bank of Scotland as the bank of choice because these two are the top banks leading the United Kingdom's impressive financial growth and stability.
According to Financial Stability Report (2010), the payment system of the United Kingdom is prone to giving competition problems. Problems on the transparency of price, implementing laws have been a prevailing problem in their society. The more a bank imposes hidden charges, fewer customers would believe in the system and then the more banks would want to compete with one another but this is not the issue at hand. The issue is on the management risk that might cause them if they are espousing an ineffective strategy or approach that can be more suitable to other system than to their own system.
Research Objectives
This paper intends to understand the underlying strategies and approaches applied by top UK banks. It also aims to learn the difference between HSBC and Royal Bank of Scotland as far as their financial, business and operational risks are concern. Furthermore, the paper aims to determine which between the two banks has a better and effective approach and strategy in the risk-reduction initiatives.
Research Questions
This paper intends to answer the following questions:
What are the strategies and approaches relied upon by the banks to ensure financial stability during the inevitable times of crisis?
Which of the two UK banks have the most effective approach in dealing with liquidity risks?
How is the financial, business and operational risks related to one another?
Between HSBC and Royal Bank of Scotland, which of the two offers a wide variety of solutions in case a financial collapse takes place?
Which of the two banks can better handle a certain risk over the other?
Literature Review
A similar study conducted by Rifki Ismal (2010) focuses on the liquidity risk management in Islamic banks. In this study it shows the progressive advancement of their financial activity and their growing banking industry. However, in spite of the strong structural approach they applied on their banking industry they still encounter the inevitable liquidity risks. Due to the prevailing global crisis, the Islamic banks are strongly affected and it then became a challenge to focus on implementing better risks management approach. Moreover, they believe that a program that manages or anticipates the arrival of any risks that might come their way by executing certain procedure to ensure that their capital assets remains intact. The study also explains the effect of the behaviour of the depositors towards liquidity risks in this manner they are able to assess a program that will be more suitable for them.
Before a particular program is being carried on by financial institution, a careful assessment is made by them to assure whether the enforcement of that approach is viable and necessary. It is imperative to assess not only the capabilities of their company but also the liabilities of their competitors. They need to prioritize that to be able to manage a way to handle risk management is the factor that will test whether the particular bank institution could last for a long time (Leach, 2010).
It has been observed that the European market has changed substantially due to the laws being enforced by their government. Such a move could drastically recreate and reorganize the banks structure. The scenario of a very controlling and restrictive government is prevalent in the United Kingdom. The aim here is to limit competition and by putting laws to minimize if not eradicate the competitive environment among bank institutions. For example, it has been read from the news that foreign bank system has been invading UK banks thus jeopardizing their financial status. This is when the need to apply a formidable approach to manage liquidity risks arises.
The Royal Bank of Scotland has managed to embrace a technology that addresses immediately expected risks that may happen especially with the very common financial risks which includes the credit, market and liquidity risks. This technology focuses on finding solution when it come system risk management which falls under operational risks. This is an effective approach since the possibility of dealing with system failure is often inevitable thus to be able to apply an immediate remedy will save cost and time. Thus, saving themselves from the damages brought by operational risks, they can focus better to the next challenges (Front Range Solutions, 2004).
On the other hand the best strategy that HSBC (2010) is best for their ability to understand the pressing needs of their customers which requires answer in the most possible time. They understand that if such targets are met they will have an edge when it comes to competition. As far as the business management risk is concern, the HSBC bank better than the Royal Bank of Scotland because they impose this approach of consolidation applied to their business structure as a form of a strategic risk management. The HSBC bank management has noticed the growing environment (Leach, 2010). Thus, competition will be an inevitable factor. They have seen it already and they have prepared for the risks and the turn of events like financial collapse which is impossible since HSBC has been declared as first in the list of best United Kingdom banks. This alone we can analyse that the bank compose of effective risks management.
Moreover, HSBC focuses on solutions and not mere ideas incapable of being realized. In the battle against financial risk, the bank has prepared for it several years back before its occurrence. They have provide each of their branches very sophisticated information drive where they established a relationship with their customer to better manage future challenges reducing further risks along the way.
HSBC has always believed in the power of technology and how it could protect them from risk managements. Their company has a better strategy compared to the Royal Bank of Scotland because the technology they use as a way to store reliable data is an essential part of the business. The technology applied by the bank has been tested over time and it has been seen very effective towards reducing future financial problems. The manner they initiated it encourages competition but they never allow their competitors to win over them since they believe in the technology approach and a strategy that has brought them to the top.
According to my fair analysis, HSBC and the Royal Bank of Scotland are more or less alike when it comes to the technology and innovations they have implemented so their system could best cope up with the challenges. Probably the only thing that differs between the two is on how the risk management procedure is being delivered. Each bank has its unique trend and emphasis and that no matter how good a system maybe if it could be possibly applied to a certain scenario it is just going to go to waste. However, if such an approach is wisely chosen and effectively implemented, there is going to be a best and fair competition.
Since HSBC garnered the top place, it is seen fit to consider that it has a better system compared from the Royal Bank of Scotland in handle majority of the risks because it is able to carry on unhindered by any financial catastrophe that disastrous effect on those who has weaker management strategy. Both banks have wide variety of solutions to offer, they have systems such a highly developed information drive and the sophisticated approach on reliable data storage. These are their strong points that are mustered by both in dealing with financial challenges.
Source of data collection
This paper utilizes secondary resources such as online journals, magazines, and financial websites relevant to the study in hand. The source of this paper is mostly taken from websites providing annual financial reports about bank institutions. The researcher found it as a reliable secondary source since it reflects the accurate data needed for this paper.
