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What Is ‘London Big Bang’?

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Most of them affected several changes the way the London stock exchange work the ripple effect was actually enormous. The key changes brought in by the ‘big bang’ was that it allowed the main two roles to be combined so the big banks took full advantage, fixed commissions were abolished. Therefore, a bank could claim to be a ‘broker dealer’. Secondly, the fixed commission systems were thereby, abolished. The next change was that foreign firms were moreover, allowed to operate in the city of London (they took full advantage). The ‘big bang’ had accelerated a trend opening up the London market to international competition and international interest. ‘Big Bang’ also was perhaps, known as the deregulation of all financial services.

The advantages of ‘Big Bang’ are huge efficiencies of new technology, Lower costs with the abolition of fixed commissions, greater competition. Moreover huge increase in volumes in trading stocks, shares etc. However, there are disadvantages like conflicts of interest, ‘Chinese walls’ defined as an, artificial barrier to the flow of information.

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Effects Before and After ‘Big Bang’

The most important difference between after and before ‘Big Bang’ is, before Big Bang, consumer banks and financial institution issued, long-term loans secured on buildings. These loans had to be therefore, prepared from the assets or the institutions or the retained money of their consumers, the loans eventually could not be sold on to a different institution, the retail institutions could not buy and sell stocks, shares, bonds both by themselves or from their consumers. After the ‘Big Bang’, the difference amid investment institutions and retail vanished. The banks and building societies were now able to monetize the mortgage loan book from the method called securitization. Trading on money markets was possible now, which means they could sell on their mortgage-backed securities and receive immediate payment eventually allowing them to have more funds to lease (lend out). Most of them affected the way the city is specifically the London stock exchange work. The ripple effect seems to be actually enormous. Prior to the Big Bang, LSE’s 300 member firms were domestic. However about 65% of the workforce in the city was paid by foreign company. In addition, 75 member firms were foreign owned within a year. This change gave a rise in bonus cultures. Insuperable conflicts of interest were perhaps, caused by Big Bang.

Difference between narrow (‘retail’) banks and investments banks eventually vanished. Banks were now competent to provide, buy, and sell in stocks and other financial instruments on their own. The city of London became an open global financial marketplace to compete with others. After Big Bang, there were changes in lending practices. As the new regulations took, place banks and building societies had complete access to large-scale, widespread and international money markets, which means depending on customers’ deposits, as mortgages (source of loan) did not happen afterwards. Contrasting the traditional regime, the mortgage institutions did not keep the mortgages ‘in house’. Currently mortgages were sliced into different ‘tranches’, these tranches were joint with bits of other mortgages and sold on as bonds in the money markets – the lending institution without delay received back a considerable percentage of its initial mortgage loan. In other words, this means ‘securitization’ of mortgages. Essentially the risk assessment now moved from banks to the Credit Rating Agencies – they rated the ‘mortgage backed bonds’ – the SIV’s.

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