Macro and micro prudential regulatory failures between banks in the United Kingdom and Australia 2004‐2009

Abstract

Purpose

This paper compares the performance of the big four UK banks and four Australian banks between 2004‐2009. The banks are chosen according to the total assets as listed in The Banker magazine 2009. The purpose is to analyse why UK banks were more vulnerable to the financial crisis of 2007‐2009 than Australian banks. The consequence of this study is what improvements can be made in relation to liquidity, leverage, loan to deposit, asset quality and capital ratios.

Design/methodology/approach

The author adopts an empirical approach and gathers data from the annual reports of the big four UK banks and Australian banks and the database “Factiva” and the Financial Times. The data contains liquidity, debt, capital, asset quality and profitability ratios during 2004‐2009.

Findings

The author's data show UK banks had on average higher cash ratios, higher leverage ratios, higher loan to deposit ratios, higher capital ratios, lower asset quality, lower ROA but higher ROE than the Australian banks.

Research limitations/implications

The results support the findings in the Financial Development Index 2011 of the World Economic Forum. UK banks should ameliorate its ranking on financial stability by improving the quality of loans and capital.

Practical implications

The analysis is of use to regulators who are contemplating the need for reforms aimed at improving financial ratios of banks. Basel III Accord has introduced some recommendations but has its limitations.

Originality/value

This paper's value lies in providing analysis of the top four UK and Australian banks' performances during 2004‐2009. There is room for improvement in providing a more stable financial environment in the UK.

Citation

Lui, A. (2013), "Macro and micro prudential regulatory failures between banks in the United Kingdom and Australia 2004‐2009", Journal of Financial Regulation and Compliance, Vol. 21 No. 3, pp. 241-258. https://doi.org/10.1108/JFRC-10-2012-0044