Market failure in the financial sector

ContextA group of banks, including Barclays and JP Morgan, have been fined more than €1 billion by the EU’s competition authorities for rigging the foreign exchange market after the Global Financial Crisis of 2008. The EU found that traders at the banks had used online chat rooms to share information about customers’ orders, prices and other trading activities in order to manipulate the currency markets.

ContextIn May 2020, the UK government introduced a loan scheme to help small businesses survive the downturn in the economy. Small businesses could borrow up to £50 000 at an interest rate of 2.5% for up to 6 years from a bank. The government guaranteed 100% of the loans, to enable banks to issue them quickly, and only minimal checks were made on borrowers.