3. Bank of England Experts respond!

I'm Ratidzo Starkey, Head of Outreach and Education. My job is to make sure people (including children) know what the Bank of England is and what we do.

Ratidzo Bank of England

Q) Did smaller countries get affected by the financial crisis? If not, why?
From communicative_bird at Ravenscroft Primary School

A) Well it depends on what you mean by smaller countries as some of the smallest countries in the world, such as Iceland and Ireland, bore the biggest brunt of the financial crisis. Not only did the banks in Iceland and Ireland need bailing out, so did the countries! The governments of both countries had to receive help to sort out their finances.

If you mean less developed – i.e. poorer – countries, they were also affected, just not to the same extent as the more developed countries. We have seen how the financial crisis spread because banks couldn’t borrow from each other. Well, banks didn’t just rely on lending from banks in their own countries – they also borrowed from banks in other countries, which is how the financial crisis spread. But the financial systems in the less developed countries were not as advanced and banks in these countries were not as reliant on other banks. So, when the panic first started in the advanced countries, it did not spread as quickly to developing countries.

However, as the advanced countries begun to suffer, it did begin to impact developing countries. Without easy access to finance, advanced countries did not have money to buy goods, such as oil and gold and corn, from the developing countries. World trade fell and developing countries could not get the same price for the goods they were selling to advanced countries. Companies in advanced countries stopped expanding their operations into developed countries. In addition, as people in advanced countries were losing their jobs, they could not send as much money to their families in developing countries. This is why it is known as the GLOBAL financial crisis because it really did affect the whole world.

My name is Charlie Dyos-Hunter and I'm a Senior Public Communications Analyst at the Bank of England. My job is to explain what the Bank does to the public.

Charlie Dyos-Hunter Bank of England

Q) What would happen to all the goods that people are trying to sell if they were to be another financial crisis?
From methodical_engine at Weston Favell Academy

A) What a great question! My first thought would be that it depends how a future crisis affected the amount of money people had. If it were a crisis where lots of people lost their jobs, or lost their money, then many goods would end up unsold. In this situation either the sellers would have to drop the price to try and encourage people to buy their goods, or they would have to hold onto them until the crisis was over. This is why many people lost their jobs in 2008, as people stopped spending money on things they didn’t need. Prices in shops also fell in 2008 and 2009 as businesses tried to get people to buy their goods.

It would also depend on what type of goods you were trying to sell. If you ran a supermarket or local food shop, you may find that you can still sell goods quite easily. This is because people still need to eat, and therefore still have to make some purchases. But if you owned a shop that sold fancy cars or holidays, you would probably find a lot of people would be sceptical about buying them! Carmakers like Jaguar had to reduce the number of staff they had, and American car companies like General Motors needed help from the US government to continue to run.

What would be an interesting topic for you to consider is how businesses might be able to plan for times when their sales fall. This might not always be in a financial crisis, but businesses need to have plans in place to make sure they can survive ‘quiet’ periods. Here at the Bank of England, we try to help consumers and businesses by controlling the cost of borrowing money from banks. If the demand for goods slows down, we can help make it cheaper to borrow money to make large purchases. This can help keep the economy moving through difficult times like financial crises.

Comments (6)

You must be logged in with Student Hub access to post a comment. Sign up now!