Over the centuries, the UK has established itself as a
financial hub, with London emerging as a centre for international trade in the
early 18th century. The Bank of England, established in 1694, played a crucial
role in providing greater liquidity in the national marketplace and supporting
the growth of foreign trade.
In 1986, the London Stock Exchange underwent significant
changes when it was deregulated, an initiative that became known as the
"Big Bang". This event marked the introduction of electronic trading,
eliminating face-to-face trading mechanisms and resulting in a surge in trading
activity. The Big Bang led to the merger of brokers, jobbers, and merchant
banks, and created a free-for-all trading environment that attracted several
international banks to London. The Big Bang is credited with creating a
significant number of millionaires, and it has left a legacy in the form of a
robust financial infrastructure that has cemented London's status as a leading
global financial hub.
During the same period, the London Interbank Offered Rate (LiBOR)
was established as a benchmark interest rate used to set the cost of borrowing
for financial institutions around the world. LiBOR was established in 1986 as
part of a broader set of reforms known as the "Big Bang" that
deregulated financial markets in the UK. The purpose of LiBOR was to serve as a
benchmark interest rate that reflected the cost of borrowing for banks in the
London interbank market. The rate was determined by a daily survey of a panel
of banks, which submitted their estimated borrowing costs for various
currencies and maturities. LiBOR quickly became a widely used benchmark rate
for financial contracts, including derivatives, loans, and mortgages, and
played a key role in facilitating global financial transactions.
The 1990s saw the UK's financial sector continue to grow,
with the emergence of hedge funds and private equity firms. By the 2000s, the
UK's financial sector had become increasingly globalized, with strong foothold
of international banks.
However, the global financial crisis in 2008 led to
increased regulation of the financial sector and a renewed focus on risk
management. And in 2021, the Financial Conduct Authority (FCA) announced that LiBOR
will be phased out by the end of the year, reflecting changing attitudes
towards benchmark interest rates. The changing attitude came as a result of
several scandals and concerns over the manipulation of these rates. In this
context, LiBOR had come under scrutiny after allegations of rate-rigging by
several large banks. This resulted in a loss of confidence in the benchmark and
a dire need for a replacement.
In conclusion, the UK has a long history as a financial centre,
with London establishing itself as a hub for international trade and finance.
The development of the Bank of England, the creation of the London Stock
Exchange, and the introduction of electronic trading and LiBOR have all
contributed to London's status as a leading global financial hub. However,
challenges such as the global financial crisis and concerns over benchmark
interest rates have also prompted increased regulation and scrutiny of the
financial sector.
