The Process Model in Policy Changes

The Process Model in Policy Changes This paper advances the theoretical framework of the stagist heuristic framework or sometimes known as the process model in attempting to explain and analyze the policy activities which led to the enactment of Quebecs Tobacco Act  [1]  of 1998. The main premise of this paper is to evaluate the usefulness of the process model in understanding the policy making process through a comparative study between this model and the Advocacy Coalition framework (ACF). I employ, and borrow, the case study of Bretton et al., (2008) that offers an alternative outlook to the developments of the Tobacco Act using the Advocacy Coalition Framework. This paper concludes with a discussion of the models which satisfactorily reflect the reality of how policies are formulated and enforced. 1. Introduction This paper is organized into 4 parts. Part one sketches the theoretical perspectives of the stagist heuristic model and examines the factors and processes leading to the adoption of the Tobacco Act. Crucially, this part will highlight the critical role of policy actors in affecting policy processes and outcomes. Part Two provides a critical analysis to the effectiveness of the model by elaborating the advantages of the model. Part Three will go on to provide criticisms of the model by comparing it with the advocacy coalition framework used in analyzing the Tobacco Act of 1998. This part will present the many criticisms of the stagist model, using mainly contributions offered by Lindblom Woodhouse (1993) and Sabatier (1999). Finally, Part Four concludes with a brief overall assessment of the framework, considering in particular, its status as an analytical tool for understanding policy making in the real world. In the context of this paper, policy analysis is defined as a set of interrelated decisions taken by a group of political actor or group of actors concerning the selection of goals and the means of achieving them within a specified situation where those decisions should, in principle, be within the power of those actors to achieve (Jenkins, 1978: 35). From Jenkinss (1978) definition above, which acknowledges public policy as a set of interrelated decisions taken by numerous individuals and organizations in government, I will form the basis of this paper. I will focus solely in understanding the processes or what Jenkins (1978) referred to as interrelated decisions leading to the adoption of the Tobacco Act. His definition also correlates to Lasswells conceptualization of knowledge of rather than knowledge in policy making, in which the latter (i.e. knowledge in), is more substantive and prescriptive (Dunn, 1981; Hogwood Gunn, 1984, Hill, 1993). The policy domain is inherently complex, and so analysts have made use of various models of simplification to comprehend the overwhelming situation and to understand it more thoroughly. Through the lens of the stagist heuristic model, policy analysts have been able to synthesize the complexity of such process into a series of functional phases, which frame this overtly political process as a continuous process of policy making. 1.1. The Stagist Heuristic Framework As pioneered by Lasswell (1956), and modified by Jones (1970), Mack (1971), Rose (1973), Anderson (1975), Jenkins (1978), Brewer De Leon (1983) and Hogwood Gunn (1984), this ideal-type framework adopts a technocratic approach to public policymaking, embracing linear and logical progression from agenda setting and concluding with policy evaluation and termination. The chronological orders of the policy life cycle are commonly categorized as problem definition, agenda-setting, policy formulation, implementation and finally evaluation (Dunn, 1981; Hogwood Gunn, 1984; Sabatier, 1999; Dye, 2002; Colebatch, 2002). 1.1.2. Problem recognition and definition. Hitherto, the greatest impetus to the developments of policy science crystallizes on a response to a myriad of social problems within, what Lasswell terms as policy orientation (cited in Dunn, 1981; Hogwood Gunn, 1984; Howlett Ramesh, 2003). Similarly, the process model presupposes the recognition of problem triggered by a felt existence of problems or opportunities (Dunn, 1981). A problem is defined as an unrealized value, need, or opportunity which, however identified, may be attained through public attention (Dunn, 1981: 44) which needs to do something about as pointed out by Wildavsky (1979) a difficulty is a problem only if something can be done about it (Wildavsky, 1979:26). However, problem recognition and definition are not straight forward activities. According to Birkland (2007) because a problem is a process of social construction, as mirrored by Dunn (1981) who states how the problem is in the eye of the beholder (Dunn, 1981: 27), it depends on subjectivity of interpretations held by various stakeholders. And so, the majority ruling may be ill-defined and, at times, may even be misframed  [2]  (Baker, 1977). In addition, as Steiss Deneke (1980) suggests, problems are seldom mutually exclusive because they often exist in a hierarchical relationship to one another, and the solution of one may depend on the solution of another, either higher or lower in the hierarchy (Hogwood Gunn, 1984: 124); therefore may often lead to a further redefinition and modification of the problematical situations (Wohlestetter, 1976; Wildavsky, 1979; McRae Wilde, 1985), which, in turn, lead to the creation and realization of more problems (Wildavsky, 1979), which I go on to address in the following paragraph. Quebecs Tobacco Act was primarily enacted as a response to the growing concerns of the public towards the issue of passive smokers or secondary smokers. As reported by Breton et al. (2008), the Tobacco Act was enacted to protect the fundamental right of non smokers to enjoy a smoke free environment than by the harms to health (Breton, et al., 2008: 1682). However, the definition of the issue leads to the discovery of more social problems. On one hand, problems such as addictiveness of smoking, prevalence of youth smokers (which have significantly lead to raising educational awareness of the hazards of smoking), how the majority of the population are non smokers and, finally, the financial burden to the public health care system are brought to attention. On the other hand, protesters of the bill have contested the lethality to passive smokers, arguing that such intervention might impede the competitiveness of the tobacco industry (through the implementation of tax) and, thus, affect t he economy of the province. In liberal democracies, such as Quebec, problem identification and definition are conceptualized as highly pluralistic, involving diverse policy stakeholders such as the public (population, retailers), individuals (Minister of Health), organizations (e.g. Quebec Division of Cancer society, Ministry of Environment, Ministry of Health, Hospital industry), interest groups (e.g. Tobacco manufacturers, Non Smokers Right Association, Tobacco workers union, Events Rallying for the Freedom of Sponsorship group), the media, policy communities (Regional Public Health Directorates [RPHD], columnists and journalists, Quebec Coalition for Tobacco Control [CQCT] and also mentioned U.S administration) (Dunn, 1981; Sabatier, 1991; Kingdon, 1995; Dye, 2002; Howlett Ramesh, 2003); the actual agenda setting is characterized by different patterns in terms of actor composition and the role of public. There are outside initiation as well as inside initiation  [3]  (May, 1991 cited in Fisher, Miller Sidney, 2007); mobilization and consolidation  [4]  (Howlett Ramesh, 2003). In this case, the tobacco control adheres to Howlett Ramesh (2003) concept of consolidation; whereby due to the impending agitation of the issue amongst the public and subsequent contraband crisis of cigarettes smuggling in the US, policy elites (prominently the new Minister of Health and the National Assembly [NMA]) have seized the opportunity for government legitimacy in tobacco control by, effectively, propagandizing the issue to the public via regularly intervening in the media on different aspects of tobacco control and visiting MNAs cabinets (Breton et al., 2008: 1685). 1.1.3. Agenda setting Next, I explore the agenda setting phase which Birkland (2007) defined as the process by which problems and alternative solutions gain or lose public and elite attention (cited in Fisher, Miller Sidney, 2007: 63). The elevation from systemic agenda into institutional agenda  [5]  is usually dominated by power struggles between groups competing to elevate or block issues from reaching the institutional agenda (Cobb Ross, 1997); acting singly or, more often, by building strategic coalition with others (Sabatier, 1991; Lindblom Woodhouse, 1993). From the case study, this process is signaled by the agenda of the new Minister of Health and the tabling of the bill by the Council of Ministers at the legislative meeting. As part of his strategy in building a winning coalition, the Minister successfully gathers allies and supporters for the bill by establishing the CQCT; embracing Sabatiers ACF model. In addition, Breton et al. (2008) mentioned that the Minister of Health has also announced plans to include in the bill provisions that prohibit active involvement of tobacco companies in sponsoring arts and sports events. Spearheaded by the centralized coordination of the CQCT, the winning coalitions which compose of Non Smokers Association and various municipalities through representatives from the RPHD, effectively debated the bill and gathered political support from the Council of Ministers at the parliamentary commission meetings, which resulted in the official adoption of the bill on February, 1998. 1.1.4. Policy formulation and decision-making. In the traditional stage model of the public policy process, policy formulation is part of the pre-decision phase of policy making in which the political interchange described by Lindblom (1993) as competition of ideas emanates. It involves identifying and/or crafting a set of policy alternatives to address a problem, and narrowing that set of solutions in preparation for the final policy decision. This approach to policy formulation, embedded in a stages model of the policy process, assumes that participants in the policy process recognize and define a policy problem, consequently moving it onto the policy agenda. During this stage of the policy cycle, expressed problems, proposals and demands are transformed into government programs. At the same time, studies of policy formulation have been strongly dominated by the effort to improve practices within governments by introducing the techniques and tools of rational decision making. In all political systems people gather facts, interpret them and debate issues. This stage is when the Minister establishes centralized command through CQCT to formulate the policy to tackle the issue of public smoking. In addition, the continuous dialogue and consultation involved in an agreement of the bill with NGOs, municipalities, health institution, local and regional organizations as well as oppositions falls into this stage. Crucially, the bill was also amended to streamline the phasing out of tobacco industry sponsorship but offered no alternative solution to youth smoking and did not contest the actual harms on health of tobacco use (Breton, et al., 2008: 1 686). Brewer DeLeon (1983) usefully define decision making as the choice among policy alternatives that have been generated and their likely effects on the problem estimatedà ¢Ã¢â€š ¬Ã‚ ¦it is the most overtly political stage in so far as the many potential solutions are winnowed down and but one or a select few picked and readied for use. (Howlett Ramesh, 2003:162). The models on decision making are classified as rationalism which asserts utility maximization to complex policy problems in which policy relevant information was gathered and then focused in a scientific fashion on the assessment of policy options (Howlett Ramesh, 2003:166); and incrementalism which describes policy making as a political activity of maintaining the status quo through gradual and continuation of past policies. 1.1.5. Implementation. Dye (2002) defined implementation as the implementation of policies through organized bureaucracies, public expenditures, and the activities of executive agencies (Dye, 2002: 15). Intra- and inter- organizational coordinating problem and interaction of field of agencies with the target group ranked as the most prominent variables accounting for implementation failures (MacRae Wilde, 1985; Howlett Ramesh, 2003). Another explanation focuses on the policy itself, acknowledging that unsuccessful policy implementation can be, though by no means the only, result of bad implementation, but also bad policy design, based on wrong assumptions about the cause-effect relationship (Hogwood Gunn, 1984; Fisher et al., 2007: 52). The study of implementation is dominated by the concept of top-down centralized implementation and bottom-up implementation. The top-down school or the vertical dimension represented, for instance, by scholars like Van Meter Van Horn (1975), Hood (1976), Gunn (1978), Nakamura Smallwood (1980) and Mazmanian Sabatier (1983), conceive of implementation as the hierarchical execution of centrally defined policy intentions (Fisher et al., 2007:89). Proponents of the bottom-up or horizontal approach include Lipsky (1971, 1980), Ingram (1977), Elmore (1980), and Hjern Hull (1983) who have emphasized the fact that implementation consists of everyday problem strategies of street-level bureaucrats (Pressman Wildavsky, 1973; Colebatch, 2002; Fisher et al., 2007). In this case, the policy implementation correlates closely with the top-down approach because the implementation is based on the commitments and directives from the top echelon of the government i.e. Minister of Health and Ministry of Health. 1.1.5. Evaluation. Finally, evaluation is the post hoc analysis of policies and programmes carried out by government agencies themselves, outside consultants, the press, and the public (Dye, 2002:15) through collecting, testing, and interpreting information about the implementation and effectiveness of existing policies and public programmes (Majone, 1989: 167). The plausible normative rationale is that policy making should be appraised against intended objectives and impacts form the starting point of policy evaluation, which forms the basis for justifying government actions for continuation or termination of public programmes and enables accountability of government offices especially in democratic setting (Majone, 1989). However, from the case study, it is unclear whether any form of evaluation was carried out or not. 2. Advantages. Despite depicting the developments of the Tobacco Act in a series of stages, as mentioned by Hogwood Gunn (1984) in the dividing lines between the various activities are artificial and policy makers are unlikely to perform them consciously or in the implied logical order (Hogwood Gunn, 58), Lasswell, as Hudson Lowe (2004) note, did not conceptualized these stages as real, in the sense that they encompass clear beginnings and ends. Rather, their function being merely analytic-to help us explore different dimensions of the policy process. He [Lasswell] is more concerned with the value systems, institutions and wider social processes that shaped policy in the real world (Hudson Lowe, 2004: 5). Therefore the process model does provide valuable descriptive analysis of the policy process. As explained above, the process model helps to disaggregate an otherwise seamless web of public policy transactions, as each segment and transition are distinguished by differentiated actions and purposes. Furthermore, the cumulative analyses of the various stages, arguably, contribute to the disentangling of the intricate political and social interdependencies, manifested in the policy arena, to bring about an ordered and manageable system  [6]  (DeLeon, 1983). Furthermore, this process framework has significant strategic implications. Firstly, by analyzing the policy actors and processes in discrete stages, it assists in identifying how stakeholders may support or resist health policies (ODI, 2007); and therefore develop strategies in building winning coalitions as mentioned by Easton (1979) which states how the process model lend themselves to the identification and study of interactions, not only among the various stages in the process but also among various participating organizations and between organizations and the lager social and economic environment (cited in Hogwood Gunn, 1989: 25). Although this might be more applicable to the ACF, such advantage also applies to the process model especially during the agenda setting phase. As described above, in the agenda setting phase, the process model highlighted and identified various policy stakeholders and analyzed the relationship of policy advocacies which resisted (Tobacco Manufacture rs and Tobacco Workers Union) against those whom supported the bill (Minister of Health and Non Smokers Association); thereby enabling the assessment of the cumulative effects of various actors  [7]  , forces, and institutions that interacts in the policy process and therefore shape its outcome(s) (Jann Wegrich [2007] cited in Fisher, Miller, Sidney, 2007: 44). Secondly, it also helps in identifying and addressing various obstacles that undermine successful implementation of policies (ODI, 2007). The process model follows the assumption of how public policy making is a goal oriented process aimed to reach a goal or realize an objective or a purpose (Anderson, 1984 cited in Colebatch, 2002:85), henceforth policy makers are able to identify constraints, which in this case, a negotiation with oppositions and gathering public support for the bill ensured the successful adoption of the bill. Finally as pointed out by Hogwood Gunn (1984), the process framework is rather flexible in the sense that it enables us to systematize existing knowledge without precluding the integrating of future insights (about stages, influences, interactions, etc) to the framework (Hogwood Gunn, 1984: 25). In other words, it improves the prospects of technical evidence considered during policy formulation leading to evidence based policy making. The most common method in the British government in gathering technical information for systematic analysis of policies is through trial and error achieved by carrying out a pilot test before actual implementation of policies. 3. Criticisms: A better understanding in policy making. On the contrary, Parkinson (2008) in his lecture, quite rightly so, argue that the process model resembles a mechanistic tool that describes checklists of parts present in the policy making arena; parallel to Nakamuras (1987) notion of a textbook approach (Sabatier, 1999). Henceforth, the top down legalistic framework is an artificial portrayal of the policy process (Dunn, 1981; Sabatier, 1999) as stated by Lindblom (1993) that deliberate, orderly steps are therefore not an accurate portrayal of how the policy process actually works. Policy making is, instead, a complexly inter-active process without beginning or end (Lindblom Woodhouse, 1993: 11). In other words, these processes do not evolve in a pattern of clear cut sequences; instead the stages are constantly meshed and entangled in an ongoing process which is more accurately resembles a primeval soup (Kingdon, 1995; Howlett Ramesh; 1995). Therefore, the process model leads to the imposition of hypothetical explanation of future events which may be inappropriate or misleading with actions occurring fitfully as problems become matched with policy ideas considered to be in the political interests of a working majority of the partisans with influence over the policy domain (Lindblom Woodhouse, 1993 : 10). 3.1. Rationalization of processes. Hogwood Gunn (1984) question the coherence and rationality of the process model as a blueprint for action by giving rational explanation or justification of past acts, even when the acts in question do not lend themselves to such treatment (Hogwood Gunn, 1984: 26). Furthermore, Lindblom (1993) also argue that the stages are not hierarchical which proceeds from agenda setting and concluding with evaluation; rather they often overlap loop with each other as analysis proceeds. This is further elaborated below. Firstly, Lindblom (1993) argue that there may not even be a stage when problem definition occurs, since participants often vary widely in their ideas about the problem (Lindblom Woodhouse, 1993:10). He explains that this is because policy sometimes is formed from a compromise among political participants, moreover, none of whom had in mind quite the problem to which the agreed policy responds (Lindblom Woodhouse, 1993:10). Secondly, Lindblom Woodhouse (1993) also point out the inaccuracy to suggest that the decision-making phase exist. As suggested by Heclo (1972) a policy can consist of what is not being done (Hogwood Gunn, 1984: 21) and, thus, equally important, are the decisions to keep issues, that would be inconvenient, firmly off the agenda for political success in winning the disputes that arise. In other words, policy may emerge without any explicit decision, by failure to act as or the power of nondecision making (Bachrach Baratz, 1962; Heclo, 1972). Bachrach Baratz (1962) which exhibits the existence of institutional bias so that key groups are excluded in what is termed as the three dimensional view of power, in which power is used to exercise to control over the agenda of politics and of the ways in which potential issues are kept out of the political process (Lukes, 2005: 25). Furthermore, stating decisions are taken exclusively in the decision-making phase is rather inaccurate, becaus e in reality, decisions are constantly being made regardless of the stages you are in. For example, during the policy formulation, policy makers makes decisions on which alternatives to adopt for consideration and hence to implement; and during the implementation stages, policy makers make decisions on the choices of policy instruments to be utilized (Hill, 1993; Howlett Ramesh, 2003). Thirdly, Lindblom Woodhouse (1993) also argued that implementation and evaluation cannot be separated from the other steps. As mentioned by Lindblom Woodhouse (1993) an attempt to implement one policy almost always brings new problems onto the agenda, meaning the implementation and the step called agenda building collapse into each other (Lindblom Woodhouse, 1993: 10). An example from the case study is that during the implementation of the Quebec Tobacco Act, to include taxation on tobacco and a ban on tobacco sponsored arts and sports event, subsequently led to the discovery that such measure might impinge the competitiveness of tobacco industries and affect the economy of the province. Finally, policy evaluation often regarded as the end of the line, does not actually constitute a step in policy making unless it throws light on possible next moves in policy, in which case evaluation becomes intertwined with all other attempts to appraise and formulate options for reshaping government activity (Lindblom Woodhouse, 1993: 10). Moreover, I think that the evaluation phase overlaps with the agenda setting phase and the policy formulation phase. During the agenda setting and policy formulation phase, policies are also evaluated needed to persuade and influence people in adopting and supporting the bill. 3.2. Multiplicity of interactions. On the other hand, Sabatier (1999) note the framework oriented scholars towards looking at just one stage at a time, thus neglecting the entirety of the process by stating that they portrayed a disjointed, episodic process rather than a more ongoing, continuous one (Sabatier, 1999: 23). In addition, Sabatier Jenkins Smith (1999) set out 5 major deficiency of the heuristic approach; it provides little description of how policy moves from one stage to another; it cannot be tested empirically; it is essentially a top down which fails to take account of street-level and other actors; and it disregards multiple levels of governmental interactions. Finally, it does not provide an integrated view on the gathering of policy related information, apart from the evaluation phase (Parsons, 1995; Sabatier, 1999) as pointed out by (Majone, 1989) the effectiveness in solving social problems centres in bringing more information and systematic analysis into the policy making process. From the case study, it is clear that the process model is limited in its capacity to provide institutional analysis of government interactions because it is primarily conceived to provide systematic analysis of the overall policy making process, unlike institutionalism perspective which focuses on the role and relationship of government institutions which regards public policy as an institutional output of the mechanisms of the government where it is authoritatively determined, implemented and enforced by these institutions (Dye, 2002:12). Furthermore, the process model adheres to the view that policy making is a hierarchical top down process which initiates from agenda setting and finally ends with evaluation stage and therefore only takes account of authorized decision makers. Finally it is also rather limited in empirical research on each stage and only makes an attempt to describe systematic gathering of information in the evaluation phase only. However, on the other hand, I wou ld have to disagree with Sabatier (1999) in that the process model does not provide clear distinction between the stages and the progression from one phase to another. I think the primary distinction of the stagist model lies in the context of policy environment and policy stakeholders involved  [8]  . Henceforth taking the definitions which I presented above of each stage and the ones offered by Dye (2002: 14-15), the demarcations between the stages are summarized in the table below: Phase Policy Stakeholder (i.e. who are involved) Policy Environment (i.e. where does it take place) 1. Problem identification Individuals, public and private organizations, interest groups, think tanks, mass media and policy communities. Public debates, consultation with public, and sometimes top level government officials identify it themselves. 2. Agenda setting Public officials acting as gatekeepers as well as involvement of policy entrepreneurs. Mostly done by the Executive branch of the government and in government offices. 3. Policy formulation Primarily done by government officials in Executive agencies, but may also involve interest groups, congressional committees, and think tanks. Again done in Executive government offices but may also involve the Legislative branch of the government i.e. Parliament or Senate. 4. Implementation Primarily street-level bureaucrats and occasionally involving public participation. Carried out in formal government institutions. 5. Evaluation Done by government agencies but may also involve the public through medias, consultants and think tank organizations. Also very important is the use of citizen juries to evaluate public programmes. Evaluation is carried out in government offices, but also may be carried out in NGO organizations (such as EU, UN etc) and non-governmental institutions. In addition, Breton et al., (2008) successfully utilize the ACF to explain how the interactions of multiple policy advocacies have impacted policy change, which is another major deficiency of the stagist heuristic model. As mentioned by Majone (1989), both continuity and change are inherent in the conception of policy (Majone, 1989: 35) and therefore should be accounted for in the models in its capacity to comprehensively capture the policy making process. For example, the ACF manage to show how the changes in the external events directly impact the core beliefs of tobacco subsystems and hence resulted in the adoption of Tobacco Act (Refer to Fig.2 in Breton et al., 2002: 1683). However unlike the ACF, process model does not provide description on how policies are impacted by change. Moreover the process model assumes that every policies starts from scratch i.e. always starts by identification of problems. Conversely, policies may be enacted not from new problems or opportunities that emerge, rather continuation of past policies in which case, the problem identification phase may be invalid. 4. Conclusion In conclusion, the process model provides valuable insights in directing analysts attention to critical features in the policymaking process, and on elucidating the policy process paradigm. Furthermore, although the ACF model is conceived to account for the entire policy process, it is limited in its capacity to explain only the policy formation (i.e. agenda setting and decision making). In other words, both models differ in their level of analysis, which I hope have been successfully demonstrated above. On the other hand, the idea of breaking down the making of public policy into phases, may well impose stages on reality that is infinitely more complex, fluid and interactive; but to adopt a cyclical metaphor, it is not necessarily an unreasonable or unrealistic way of looking at what happens when public policy is made. Nonetheless, the process model does still provide some useful insights in public policy making. In my opinion, the most important thing is not to look at one best model to explain a particular policy rather a combination of models is needed as pointed out by Dye (2002: 12): These models are not competitive in the sense that any one of them could be judged best. Each one provides a separate focus on political life, and each can help us to understand different things about public policy. Although some policies appear at first glance to lend themselves to explanation by one particular model, most policies are a combination of rational planning, incrementalism, interest group activity, elite preferences, game playing, public choice, political processes, and institutional influences.

Apush Notes Chapter 8

A. P. U. S. History Notes Chapter 8: â€Å"America Secedes from the Empire† ~ 1775 – 1783 ~ I. Congress Drafts George Washington 1. After the bloodshed at Lexington and Concord in April of 1775, about 20,000 Minutemen swarmed around Boston, where they outnumbered the British. 2. The Second Continental Congress met in Philadelphia on May 10, 1775, with no real intention of independence, merely a desire to continue fighting in the hope that the king and Parliament would consent to a redress of grievances. a. It sent another list of grievances to Parliament. . It also adopted measures to raise money for an army and a navy. c. It also selected George Washington to command the army. 1) George had never risen above the rank of colonel, and his largest command had only been of 1200 men, but he was a tall figure who looked like a leader, and thus, was a moral boost to troops. 2) He radiated patience, courage, self-discipline, and a sense of justice, and though he insisted on wo rking without pay, he did keep a careful expense account amounting to more than $100,00. II. Bunker Hill and Hessian Hirelings 1. In the first year, the war was one of consistency, as the colonists maintained their loyalty while still shooting at the king’s men. 2. In May 1775, a tiny American force led by Ethan Allen and Benedict Arnold, surprised and captured the British garrisons at Ticonderoga and Crown Point. 3. In June 1775, the colonials seized Bunker Hill (before known as Breed’s Hill). a. Instead of flanking them, the Redcoats launched a frontal attack, and the heavily entrenched colonial sharpshooters mowed them down until meager gunpowder supplies ran out and they were forced to retreat. 4. After Bunker Hill, George III slammed the door for all hope of reconciliation and declared the colonies to be in open rebellion, a treasonous affair. 5. The King also hired many German mercenaries, called Hessians, who, because they were lured by booty and not duty, had large numbers desert and remained in America to become respectful citizens. III. The Abortive Conquest of Canada 1. In October 1775, the British burned Falmouth (Portland), Maine. 2. The colonists decided that invading Canada would add a 14th colony and deprive Britain of a valuable base for striking at the colonies in revolt. a. Also, the French-Canadians would support the Americans because they supposedly were bitter about Britain’s taking over of their land. b. General Richard Montgomery captured Montreal. c. At Quebec, he was joined by the bedraggled army of General Benedict Arnold. d. On the last day of 1775, in the assault of Quebec, Montgomery was killed and Arnold was wounded in one leg, and the whole campaign collapsed as the men retreated up the St. Lawrence River, reversing the way Montgomery had come. e. Besides, the French-Canadians, who had welcomed the Quebec Act, didn’t really like the anti-Catholic invaders. 3. In January 1776, the British set fire to Norfolk, Virginia, but in March, they were finally forced to evacuate Boston. 4. In the South, the rebels won a victory against some 1500 Loyalists at Moore’s Creek Bridge, in South Carolina, and against an invading British fleet at Charleston Harbor. IV. Thomas Paine Preaches Common Sense 1. In 1776, Thomas Paine published Common Sense, which urged colonials to stop this war of inconsistency, stop pretending loyalty, and just fight. 2. Nowhere in the universe did a smaller body control a larger one, so Paine argued, saying why tiny Britain had to control gigantic America. . He called King George III â€Å"the Royal Brute of Great Britain. † V. Paine and the Idea of â€Å"Republicanism† 1. Paine argued his idea that there should be a â€Å"republic† where senators, governors, and judges should have their power from the consent of the people. 2. He laced his ideas with Biblical imagery, familiar to common folk. 3. Hi s ideas about rejecting monarchy and empire and embrace an independent republic fell on receptive ears in America, though it should be noted that these ideas already existed. a. The New Englanders already practiced this type of government in their town meetings. . Some patriots, though, favored a republic ruled by a â€Å"natural aristocracy. † VI. Jefferson’s â€Å"Explanation† of Independence 1. Members of the Philadelphia Congress, instructed by their colonies, gradually moved toward a clean break with Britain. 2. On June 7, 1776, fiery Richard Henry urged for complete independence, an idea that was finally adopted on July 2, 1776. 3. To write such a statement, Congress appointed Thomas Jefferson, already renown as a great writer, to concoct a Declaration of Independence. a. He did so eloquently, coming up with a list of grievances against King George III and persuasively explaining why the colonies had the right to revolt. b. His â€Å"explanation† of independence also upheld the â€Å"natural rights† of humankind. 4. When Congress approved it on July 2nd, John Adams proclaimed that date to be celebrated from then on with fireworks, but because of editing and final approval, it was not completely approved until July 4th, 1776. VII. Patriots and Loyalists 1. The War of Independence was a war within a war, as not all colonials were united. . There were Patriots, who supported rebellion and were called â€Å"Whigs. † b. There were Loyalists, who supported the King, often went to battle against fellow Americans, and were called â€Å"Tories. † c. There were those who didn’t care, and these people were constantly being asked to join one side or another. 2. During the war, the British proved that they could only control Tory areas, because when Redcoats packed up and left other areas, the rebels would regain control. 3. The Patriot militias constantly harassed small British detachments. 4. Loyalists were generally conservatives, but the war divided families. a. Benjamin Franklin was against his illegitimate son, William, the last royal governor of New Jersey. 5. The Patriots were generally the younger generation, like Samuel Adams and Patrick Henry. 6. Loyalists were most numerous where the Anglican Church was strongest. 7. There were also those who sold to the highest bidder, selling the British and ignoring starving, freezing soldiers (i. e. George Washington at Valley Forge). 8. Loyalists were less numerous in New England, where Presbyterianism and Congregationalism flourished. VIII. The Loyalist Exodus 1. After the Declaration of Independence, Loyalists and Patriots were more sharply divided, and Patriots often confiscated Loyalist property and resell it (good way to raise money). 2. Some 50,000 Loyalists served the British in one way or another (fighting, spying, etc†¦), and it was an oddity that the Brits didn’t make more use of them during the war. IX. General Washington at Bay . After the evacuation of Boston, the British focused on New York as a HQ for operations. a. An awe-inspiring fleet appeared off the coast in July 1776, consisting of some 500 ships and 35,000 men—the largest armed force seen in America ever until the Civil War. b. Washington could only muster 18,000 ill-trained men to fight, and they were routed at the Battle of Long Island. c. Washington escaped to Manhattan Island, cross ed the Hudson River to New Jersey, reaching the Delaware River with taunting, fox-hunt calling British on his heels. d. Crossing the Delaware River at Trenton on a cold December 26, 1776, and surprised and captured a thousand Hessians who were sleeping off their Christmas Day celebration (drinking). e. He then left his campfires burning as a ruse, slipped away, and inflicted a sharp defeat on a smaller British detachment at Princeton, showing his military genius at its best. f. It was odd that General William Howe, the British general, didn’t crush Washington when he was at the Delaware, but he well remembered Bunker Hill, and was cautious. X. Burgoyne’s Blundering Invasion 1. London officials adopted a complicated scheme for capturing the vital Hudson River Valley in 1777 which, if successful, would severe New England from the rest of the colonies: a. General Burgoyne would push down the Lake Champlain route from Canada. b. General Howe’s troops in New York, if needed, could advance up the Hudson and meet Burgoyne in Albany. c. A third and much smaller British force commanded by Colonel Barry St. Ledger would come in from the west by way of Lake Ontario and the Mohawk Valley. 2. However, Benedict Arnold, after failure at Quebec, retreated slowly along the St. Lawrence back to Lake Champlain, where the British would have to win control (of the lake) before proceeding. a. The Brits stopped to build a huge force, while Arnold assembled a tattered flotilla from whatever boats he could find. b. His â€Å"navy† was destroyed, but he had gained valuable time, because winter set in and the British settled in Canada; they would have to begin anew the next spring. 1) Had Arnold not contributed his daring and skill, the Brits most likely would have recaptured Ticonderoga and Burgoyne could have started from there and succeeded in his venture. 3. Burgoyne began his mission with 7000 troops and a heavy baggage train consisting of a great number of the officers’ wives. a. Meanwhile, sneaky rebels, sensing the kill, were gathering along his flanks. 4. General Howe, at a time when he should be starting up the Hudson, deliberately embarked for an attack on Philadelphia. a. He wanted to force an encounter with Washington and leave the path wide open for Burgoyne’s thrust; he thought he had enough time to help Burgoyne if needed. b. Washington transferred his troops to Philly, but was defeated at Brandywine Creek and Germantown. . Then, the fun-loving Howe settled down in Philadelphia, leaving Burgoyne â€Å"to the dogs. † d. Ben Franklin, in Paris, joked that Howe hadn’t captured Philadelphia, but that â€Å"Philadelphia had captured Howe. † 5. Washington finally retired for the winter at Valley Forge, where his troops froze in the cold, but a recently arrived Prussian drill master, Baron von Steu ben, whipped the cold troops into shape. 6. Burgoyne’s doomed troops were bogged down, and the rebels swarmed in with a series of sharp engagements, pushing the St. Legers force back at Oriskany while Burgoyne, unable to advance or retreat, surrendered his entire force at Saratoga, on October 17, 1777. a. Perhaps one of the most decisive battles in British and American history. XI. Strange French Bedfellows 1. France was eager to get revenge on Britain, and secretly supplied the Americans throughout much of the war. 2. After the humiliation at Saratoga, the British offered the Americans a measure that gave them home rule—everything they wanted except independence. 3. After Saratoga, France finally was persuaded to enter the war against Britain. a. Louis XVI’s ministers argued that this was the perfect time to act, because if Britain regained control, she might then try to capture the French West Indies for compensation for the war. b. Now was the time the strike, rather than risk a stronger Britain with its reunited colonies. 4. France, in 1778, offered a treaty of alliance, offering America everything that Britain had offered, plus recognition of independence. a. The Americans accepted with caution, since France was pro-Catholic, but since they needed help, they’d take it. XII. The Colonial War Becomes a World War 1. In 1779, Spain and Holland entered the war against Britain. . In 1780, Catherine the Great of Russia took the lead in organizing the Armed Neutrality (she later called it the Armed Nullity) that lined up all of Europe’s neutrals in passive hostility against England. 3. America, though it kept the war going until 1778, didn’t win until France, Spain, and Holland joined in and Britain co uldn’t handle them all. 4. Britain, with the French now in the seas, decided to finally evacuate Philadelphia and concentrate their forces in New York, and even though Washington attacked them at Monmouth on a blisteringly hot day in which scores of men died of sunstroke, the British escaped to New York. XIII. Blow and Counterblow 1. French reinforcements, commanded by Comte de Rochambeau, arrived in Newport, Rhode Island in 1780, but flares sometimes erupted between the Americans and the French. 2. In 1780, feeling unappreciated and lured by British gold, General Benedict Arnold turned traitor by plotting with the British to sell out West Point. a. When the plot was discovered, he fled with the British. b. â€Å"Whom can we trust now? † cried George Washington in anguish. 3. The British devised a plan to roll up the colonies from the South. a. Georgia was ruthlessly overrun in 1778-1779. b. Charleston, South Carolina, fell in 1780. . In the Carolinas, Patriots bitterly fought their Loyalist neighbors. d. However, in 1781, American riflemen wiped out a British detachment at King’s Mountain, and then defeated a smaller force at Cowpens. e. At the Carolina campaign of 1781, Quaker-reared tactician General Nathanael Greene distinguished himself with his strategy of delay. 1) By slowly retreating and losing battles but winning campaigns, he helped clear the British out of most of Georgia and South Carolina. XIV. The Land Frontier and the Sea Frontier 1. 1777 was known as the â€Å"bloody year† on the frontier, as Indians went on a scalping spree. . Most of the Indians supported Britain and believed that if they won, it would stop American expansion into the West, and save Indian land. 3. Mohawk chief Joseph Brant, recently converted to Anglicanism, and his men ravaged the backcountry of Pennsylvania and New York until check by Americans in 1779. 4. In 1784, the pro-British Iroquois (the Oneidas and the Tuscaroras had sided with the Americans, the other four with the British) signed the Treaty of For Stanwix, the first treaty between the U. S. and an Indian nation. a. Under its terms, the Indians ceded most of their land. 5. Even in wartime, pioneers moved west, showing their gratitude to the French with such town names as Louisville while remembering the Revolution with Lexington, Kentucky. 6. George Rogers Clark, an audacious frontiersman, floated down the Ohio River with about 175 in 1778-1779 and captured forts Kaskaskia, Chohokia, and Vicennes in quick succession. 7. The tiny American navy never really hurt the British warships, but it did destroy British merchant shipping and carried the war into the waters around the British Isles. 8. Swift privateers preyed on enemy shipping, capturing many ships and forcing them to sail in convoys. XV. Yorktown and the Final Curtain. 1. Before the last decisive victory, inflation continued to soar, and the government was virtually bankrupt, and announced that it could only repay many of its debts at a rate of 2. 5 cents on the dollar. 2. However, Cornwallis was blundering into a trap. a. Retreating to Chesapeake Bay and assuming that British control of the seas would give him much needed backup, Cornwallis instead was trapped by Washington’s army, which had come 300 miles from New York, Rochambeau’s French army, and the navy of French Admiral de Grasse. . After hearing the news of Cornwallis’ defeat, Lord North cried, â€Å"Oh God! It’s all over! † 4. Stubborn King George wanted to continue the war, since he still had 54,000 troops in North America and 32,000 in the U. S. , and fighting did continue for about a year after Yorktown, especially in the South, but America had won. XVI. Peace at Paris 1. Many Brits were weary of the war, since they had suffered heavy reverse in India and the West Indies, the island of Minorca in the Mediterranean had fallen, and the Rock of Gibraltar was tottering. . Ben Franklin, John Adams, and John Jay met in Paris for a peace deal. a. Jay suspected that France would try to keep the U. S. cooped up east of the Alleghenies and keep America weak. b. Instead, Jay, thinking that France would betray American ambitious to satisfy those of Spain, secretly made separate overtures to London (against instructions from Congress) and came to terms quickly with the British, who were eager to entice one of their enemies from the alliance. 3. The Treaty of Paris of 1783, Britain formally recognized the USA and granted generous boundaries, stretching majestically to the Mississippi on the west, the Great Lakes on the north, and to Spanish Florida on the South. a. The Yankees also retained a share in the priceless fisheries of Newfoundland. b. Americans couldn’t persecute Loyalists, though, and Congress could only recommend legislatures that confiscated Loyalist land. XVII. A New Nation Legitimized 1. Britain had ceded so much land because it was trying to entice America from its French alliance. a. Remember, George Rogers Clark had only conquered a small part of the land. 2. Also, during the time, the American-friendly Whigs were in control of the Parliament, which was not to be the case in later years. 3. France approved the treaty, though with cautious eyes. 4. In truth, America came out the big winner, and seldom, if ever, have any people been so favored. XVIII. Makers of America: The Loyalists 1. Loyalists were conservative, well-educated, thought that a complete break with Britain would invite anarchy, and felt that America couldn’t win against the more powerful army in the world. . Many Britons had settled in America after the Seven Years’ War, and they had reason to support their home country. 3. Thousands of African-Americans joined the British ranks for hope of freedom from bondage. a. Many Black Loyalists won their freedom from Britain. b. Others suffered betrayal, such as when Cornwallis abandoned over 4000 former slaves in Virginia and when many Black Loyalists boarded ships expecting to embark for freedom and instead found themselves sold back into slavery. c. Some Black exiles settled in Britain, but weren’t really accepted easily. . Most Loyalists remained in America, where they faced special burdens and struggled to re-establish themselves in a society that viewed them as traitors. 5. Hugh Gaine, though, succeeded. a. He reopened his business and even won contracts fro the new government. b. He also published the new national army regulations authored by Baron von Steuben. c. When New York ratified the Constitution in 1788, Gaine rode the float at the head of the city’s celebration parade. d. He had, like many other former Loyalists, become an American.

Essay on “International Banking The Royal Bank of Scotland”

Essay on â€Å"International Banking: The Royal Bank of Scotland† Bank History and Overview The Royal Bank of Scotland Group Plc. or the RBS refers to a holding company of one of the leading and largest financial services and banking groups (Datamonitor Report, 2011). Primarily, RBS operates in the United Kingdom, the United States (Citizens), Asia and other international markets through its main subsidiaries NatWest and Royal Bank. The RBS is headquartered in Edinburg Scotland with an employment base upwards of 150,000. Historically, RBS was founded in 1727 as a corporation by grant of a Royal Charter (Datamonitor Report, 2011). RBS expanded all over Scotland during the 19th century and by the 20th century; it had established its presence in several parts of England. It acquired several acquisitions such as Glyn Mills and Williams Deacons Bank through its strategic expansion in England. Equally, it amalgamated with the National Commercial Bank of Scotland, which had already diversified its networks and customer bases across the region (Datamonitor Report, 2011). During the 1970s, RBS expanded to other oversea finance and leasing markets such as Hong Kong and the US. Other business initiatives undertaken by RBS include setting up of a car insurance company in 1985 to deal with selling auto insurance to customers (Datamonitor Report, 2011). This direct telephone insurance service was referred to as the Direct Line Insurance. Other investment activities included the acquisition of Citizens Financial Group that guided RBS to acquire several struggling banks across the United States. Retail banking became the core business of RBS during the early 1990s and this spurred the bank’s merchant interests, a move that guided the acquisition of Adam Company. Direct banking, a round-the-clock telephone service was launched in 1994 while online banking service was introduced in 1997. Since then, RBS has undergone several organization changes and re-engineering activities that focused on commercial and corporate customer requirements (Datamonitor Report, 2011). Situational Analysis Speaking of RBS business environment, the groups’ business environment is diversified in financial and banking activities. The Royal Bank of Scotland Plc. has its business activities diversified into nine core divisions. These includes but not limited to Global Markets, RBS Insurance, US Retail Commercial Banking, Wealth, UK Retail, Central Items, and Ulster Bank. This means that RBS operates in different environments that can be analyzed using several aspects including political, economic, technological, social, and level of competitiveness. First, PEST analysis can be used to analyze RBS’s political, economic, technological, and social aspects. Politically, RBS operates in environments characterized stability with well-developed regulatory and financial systems (Barth, Caprio, and Levine, 2006). Such regulations are critical in protecting operational activities (Mullineux, 2009). For instance, the Financial Services Authority (FSA) is influential in regulating banking and financial activities across the UK (Financial Services Authority Board Report, 2011). Equally, most governments in the operating regions intervened the activities of the banking industry during the financial crisis through bailouts and economic packages. Economically, RBS operating regions were heavily hit by the 2007-2011 global financial crises, and this had an adverse effect on operational activities of RBS. Reduced GNP, declined demand for credit services, low revenues, and declined consumer confidence are some of the economic effects that R BS suffered during the global credit crunch. However, the low capital costs and probable demand for credit increases can enable RBS to capitalize on the effects of the credit crunch. Social aspects that affected RBS during the 2007-2011 global financial crises include effects relating to consumer confidence, interest and pension worries, and career attitudes among others (Berezin, 2008). It was emphatically crucial that RBS maintains its corporate social responsibility to enhance its reputation during the crisis. Technologically, financial information systems and software platforms facilitate data mining activities, risk analysis, neural networks, and criteria for financial scanning for RBS (Elving, 2009). These tools strengthen the analysis and assessment of expenses, liabilities, and revenue streams. A Bank evolution before, during, and After the Banking Crisis of 2007-2011 The global financial crisis of 2007-2011 is the recession to hit the banking industry since the global recession of 1930s (Elving, 2009). Invariably, the crisis is linked to the Euro crises and Europe Sovereign Debt crisis, plays a fundamental role in influencing the welfare of banks and other financial institutions. The collapse of the Northern Rock and Icelandic banking system and the crisis that affected the Royal Bank of Scotland threatened many account holders. The global financial crisis of 2007-2011 led many banks to purchase risky assets for later resell. Due to less demands of these assets, many a financial institution found themselves on the verge of insolvency. Deposit withdrawals from panicking customers worsened the financial situation for such banks. In times of financial distress, even a solvent financial institution or bank may fail to realize its obligations given the opaque and illiquid nature of its assets (The Times, 2012). During the financial crises, bank runs, implicit, and explicit deposit guarantees increased the likelihood of the crisis. For the Royal Bank of Scotland, the period after the 2007-2011 global financial crises spells a period of recovery and rebuilding. A statement released by Philip Hampton, Group Chairman of RBS shows that the overall financial performance of the group represented a step-change. Operating profit is one of the factors that reflect improved performances of the Royal Bank of Scotland. External market recovery, internal rebuilding processes, and improved economic conditions are other factors that represent another significant stride for the Royal Bank of Scotland. However, the recovery to improved performance could have come that easily given the uneven spread of economic recovery across many countries, particularly the European period suffered a massive deal of financial turbulence. RBS shocked the world on February 2009 when it announced a loss of  £24.1bn from 2008, a figure recorded as the highest in the corporate history of the United Kingdom. During the same period, RBS’s fo rmer Chairman Sir Tom McKillop and Sir Fred Goodwin were summoned to appear before the Treasury Select committee to explain the roles they played in the global financial crisis (Huisman, 2011). Royal Bank of Scotland, the Global Financial Crisis, and strategic moves Before the Global financial crisis, RBS had established itself as one the leading banking partners providing financial services to corporations and financial institutions all over the world. Other services included the provision of extensive ranges of debt financing, investment services, and risk management services. Primarily, majority of these services were provided through the Global Banking and Markets division of RBS. In 2008, RBS made an announcement of  £20bn capital raising programme underwritten by the HM treasury. However, the terms of the share offer seemed unattractive to the majority of RBS shareholders and hence, the UK government acquiring a majority stake in the bank. This shows that the global financial crisis made RBS, a proud financial institution with a fine heritage in prudent banking to be bailed out by the government. RBS bosses, particularly the Chief Executive, Sir Fred Goodwin, were overoptimistic with regard to the prevailing economic situation and never took precautionary to cushion adverse financial and economic fluctuations. Despite warnings from the Financial Services Authority and the Bank of England, RBS bosses failed to oversee possible challenges that lay ahead. Risk recognition was a crucial element that lacked in the institution before the credit crunch. Following the failure shares offered to investors, the CEO resigned and as well, the Chairman offered to step-down at the expiry of his contract. The government continued injecting funds to RBS thereby increasing its ownership percentage. The release of full year trading losses and write-downs of goodwill amounted to the  £24.1bn in losses. A fall in share price from 354p per share to 10.p per share followed this announcement. Earlier in June 2008, the Royal Bank of Scotland made frantic efforts to raise  £10bn cash from the sale of its assets and this led to the  £3.6bn sale of Angel Trains, RBS’s subsidiary. Welsh and English RBS branded branches were also sold off and as well, NatWest branches in Scotland. Other failed investments included the loss of the 4.26% stake it held in the Bank of China thereby affecting the profitability of its wealth management division. Although a desperate measure, the closure of RBS tax avoidance department enabled the bank to avoid a  £500m tax levy. This move was influenced by two key factors that included the high government stake in the institution and lack of funds. The consumers also benefitted from dramatic cuts in certain fees and levies operated by the bank and this included declines in monthly maintenance charges, card misuse fees, and unpaid item fees (Datamonitor Report, 2011). However, there was massive retrenchment at the bank that led to nearly 3,700 job cuts. Many employees also suffered unpaid bonuses. GE Capital also acquired the factoring and invoice financing business from RBS at undisclosed amount. Credit rating agencies such as Moody’s downgraded RBS in 2011 due to what was termed as weaknesses in its financial system. Perhaps, the greatest loss to RBS during the financial crisis can be attributed to the purchase of the Dutch Bank, ABN Amro. It is argued that the RBS did not get a fair deal from the acquisition of ABN Amro due to overpayment. In conjunction with Spanish bank Banco Santander and Belgian bank, Fortis, RBS acquired ABN Amro for  £49bn. RBS used funds from the investment and wholesale banking division, an a lready ailing segment of RBS from its risky assets. Worse, the acquired bank ABN Amro was already exposed to the effects of the subprime mortgages coupled with the depletion of its capital base (Datamonitor Report, 2011). Investment and Mergers Before the crisis RBS had undergone several mergers and acquisitions (Kemal, 2011). In 2000, RBS acquired the National Wesminster Bank (NatWest) in a deal worth  £21 billion. IN 2001, RBS purchased a large share of capital from Virgin One business and as well, as Euro Sales finance. Direct Line Group (RBS Subsidiary) acquired Royal Insurance. Nordisk Renting and Santander Direkt Bank’s loan and credit card portfolio were acquired in a move aimed strengthening US and European operations. Churchill Insurance Group was also acquired during this period(Datamonitor Report, 2011). During the crisis During the last five years, RBS has undertaken several investment initiative and mergers. Starting in January 2007, RBS’ global banking and markets division entered into a joint agreement with Renaissance Capital to provide currency, credit derivatives, and interest rates to corporate, government, and institutional clients in Russia. February the same year, RBS’ subsidiary, Citizens Financial Group acquired GreatBank in the US thereby enabling Citizens to be the fourth largest commercial bank in Chicago. The acquisition of ABN AMRO in late 2007 was perhaps the largest acquisition and one of the worst in the history of RBS. Although the consortium was led in conjunction with Fortis and Santander, RBS used its own resources. Ventures in 2008 included the sale of ABN AMRO private equity assets and 65-branch retail banking network in Indiana. RBS sold its 4.3% stake in Bank of China and started a wealth management business in India in January 2009 (Datamonitor Report, 2011) . In efforts aimed at boosting its capital management portfolio, RBS received a  £3 billion from the British government. Several fund management assets and contract of RBS were sold to Aberdeen Asset Management PLC in early 2010. In August 2010, Santander UK plc. bought 318 branches and associated liabilities and assets from the RBS group and as well, 80% interests in Global Merchant Services were also sold. Other initiatives included joint ventures with RBS Sempra Commodities (RBSSC) and Sempra Energy (Datamonitor Report, 2011). After the Crisis As earlier mentioned, the financial crisis of 2007-2011 spelled a bad period for the RBS group and since then, the group has implemented plans to guide its financial performance and subsequently guide the road to recovery. Among the major initiatives under the development plan include rebuilding and recovery, enhancement of business achievements, and implementing measures to lessen effects of the economic backdrop (Worthington, Welch, 2011). RBS’ SWOT analysis Owing to its diversified banking and financial activities in Europe, Asia, and UK, RBS uses key strategic moves to ensure that it enhances its competitive advantage. Equally, the support from the UK government shows that RBS is an important institution in improving financial activities across the region. Strengths As a strategic approach, RBS increasingly uses mergers and acquisitions (MA) to improve its level of competitiveness in addition to expanding its portfolio and reduction of business risks (Altunbas., Ibanez, 2004). Equally, mergers and acquisitions enable RBS to enter new markets, geographical regions, and capitalize on the economies of scales (Kemal, 2011). Even though increased number of global franchises increases its exposure to risks, this move enables RBS to be a leading global financial group. With presence in more than 50 countries, RBS confers its competitive advantage. Its strategic importance in the economy of the United Kingdom enabled it receive government support in times of distress. Currently, HM Treasury owns approximately 84.4% of stake at RBS meaning that the government has interests in all RBS activities. Another RBS’ strength lies in the ownership of leading corporate and retail franchises across the UK financial sector. For instance, the retail sector of UK banking comprises of strong brands from NatWest and RBS. RBS Insurance also forms a major part in the UK retail and SME markets. From a financial approach perspective, RBS exhibits a declining reliance on wholesale funding for its efforts of improving the risk profile. This move was evident during the financial crisis where RBS minimized its reliance on volatile wholesale funding (Royal Bank of Scotland Group, 2010). Weaknesses Strategically, RBS is at risk of being controlled by the state in part due to the large stake controlled by the government and as well in part due to provisions of the Government’s Asset Protection Scheme (APS) that RBS entered in 2009 (Sutton, Lannoo, and Napoli, 2010). Although, RBS received critical support from the government during this period, this moves spells a price for RBS. Financially, restrictions placed on dividend payments prevents RBS stakeholders from paying dividends on coupons and Tier 1 securities and other restrictions laid on ordinary shares (Royal Bank of Scotland Group, 2010). Opportunities Strategically, RBS can utilize restructuring opportunities to reposition itself as a leading provider and supplier of financial services. RBS also has a restructuring plan that was designed to be implemented over five-year duration ending 2013. This turn-around plan was aimed at addressing the weaknesses identified during the rescue package offered by the government. Currently, the progress on the restructuring plan has been phenomenal particularly, the development of the non-core division aimed at housing businesses and assets that do not conform with revised RBS risk appetites and strategies. Primarily, the creation of the non-core portfolio is fundamental because it facilitates key improvements within the group. This includes funding, risk, and earning profiles and as well, material exposure and concentrations. Other strategic opportunities include reviving partnerships with leading institutions particularly those in emerging markets such as China and Asia pacific. RBS made substantial progress from its partnerships with the Bank of China that enabled it to issue 1.2 million credit cards. This opportunity also enabled RBS to access one of the fastest growing markets in the Asia Pacific region. Speaking of financial opportunities, RBS has the capabilities of focusing on investment banking thereby enhancing its opportunities of increasing profitability. This means that there are increased chances of hiring more staff to boost the investment banking, merger and acquisitions, and debt underwriting (Ashby, 2010). Threats Several threats stand in the way of affecting operational activities of RBS. First, several measures have been put in place to bring structural reforms in the banking sector, competition in the industry, and enhanced stabilities. Among these measures is the setting up of the Independent Commission on Banking (ICB) by the UK government, a move that could bring adverse effects on RBS. Findings from this commission will provide a framework for guiding all competitive activities within the banking sector in addition to putting in place measures that could strengthen the stability of these institutions. Similarly, reports from the Treasury Select Committee are likely to affect the structure of RBS. Financially, IFRS regulations have led the group to incur deferred tax assets on those losses that were expected to revive future profits. Deferred Tax Assets are quantified depending on the current level of tax legislations and prevailing accounting standards (Oxera, 2011). On the other hand, increased regulatory changes relating to quality in insurance, particularly the elimination of gender as a rating factor throughout the insurance industry will affect insurance operations of the RBS group. Competitive pressures will mount among insurance companies thereby leading to a lower rate of premiums paid on insurance contracts (Oxera, 2011). Performance measurements Revenue analysis Starting with the revenue analysis, the RBS Group recorded a reduction of 3.5% of total revenues in the FY2010 as compared to the FY2009 results. The groups’ revenues are calculated depending on the core business divisions with the Global Banking and Markets division recording the highest figures. Alternatively, revenues are also analyzed depending on their geographical locations, which comprise of the UK, the US, Europe, and the rest of the world. The UK region accounts for more than 60% of the total revenues followed by the US and Europe. Ratio Analysis Income Statement: 10-Year Summary DATE SALES EBIT DEPRECIATION TOTAL NET INCOME EPS TAX RATE (%) 12/11 61.11 Bil -1.24 Bil 3.04 Bil -3.32 Bil -0.03 0.00 12/10 65.60 Bil -647.31 Mil 3.49 Bil -597.01 Mil 0.00 0.00 12/09 74.54 Bil -4.29 Bil 3.51 Bil -4.16 Bil -0.10 0.00 12/08 76.96 Bil -41.68 Bil 3.86 Bil -20.59 Bil -1.30 0.00 12/07 82.01 Bil 15.95 Bil 3.04 Bil 12.37 Bil 1.04 20.80 12/06 68.29 Bil 14.90 Bil 2.72 Bil 10.37 Bil 0.87 29.30 12/05 60.54 Bil 12.87 Bil 2.96 Bil 8.92 Bil 0.89 30.00 12/04 50.21 Bil 11.82 Bil 2.72 Bil 6.76 Bil 0.66 27.40 12/03 40.52 Bil 9.86 Bil 2.73 Bil 6.96 Bil 0.46 31.10 12/02 36.87 Bil 7.87 Bil 2.64 Bil 6.83 Bil 0.56 32.60 Source: MSN Money, 2012 Balance Sheet: 10 Year Summary DATE CURRENT ASSETS CURRENT LIABILITIES LONG TERM DEBT SHARES OUTSTANDING 12/11 2,444.63 Bil 2,323.24 Bil 42.70 Bil 5.51 Bil 12/10 2,358.17 Bil 2,236.28 Bil 43.89 Bil 5.47 Bil 12/09 2,752.25 Bil 2,626.14 Bil 61.08 Bil 5.37 Bil 12/08 3,896.26 Bil 3,800.73 Bil 79.74 Bil 1.97 Bil 12/07 2,986.42 Bil 2,900.37 Bil 61.72 Bil 500.31 Mil 12/06 1,413.74 Bil 1,348.48 Bil 44.86 Bil 484.75 Mil 12/05 1,260.26 Bil 1,202.78 Bil 45.87 Bil 491.47 Mil 12/04 954.12 Bil 899.12 Bil 33.04 Bil 487.79 Mil 12/03 737.23 Bil 694.89 Bil 27.58 Bil 455.61 Mil 12/02 668.40 Bil 624.51 Bil 22.66 Bil 446.01 Mil Source: MSN Money, 2012 RBS Fundamentals Year Ending Revenue (m) Pre-tax (m) EPS P/E PEG EPS Grth. Div. Yield 31-Dec-07 30,366.00 9,832.00 97.81p 3.8 n/a -50% 33.20p 8.9% 31-Dec-08 25,868.00 (40,836.00) (43.10)p n/a n/a n/a n/a 0.0% 31-Dec-09 33,026.00 (2,647.00) (13.20)p n/a n/a n/a n/a 0.0% 31-Dec-10 31,798.00 (399.00) 0.50p 78.1 n/a n/a n/a 0.0% 31-Dec-11 28,911.00 (766.00) 0.20p 100.9 n/a -60% n/a 0.0% Market Capitalization In terms of market capitalization, the RBS ranks as one of the leading large-cap stocks as of 28 April 2012 with a market capitalization of USD 43.60bn. in the past 12 months, the RBS stock has reached a high of GBp 42.76 and a low of GBp 17.34. As of 28th April 2012, the current stock price was GBp 24.35. This figure places it 43.1% under its 52 week high and 40.4% over its 52-week low (Money Center Banks, 2012). Price level analysis Using Peter Lynch’s methodology of comparing projected earnings growth and dividend, RBS can be said to fundamentally undervalued if comparisons are made with the original theoretical price. When compared to the aggregate of other European Banks, RBS’ valuation appears less attractive (Money Center Banks, 2012). However, the fundamental price potential for RBS is rather good even though other stocks in the industry might appear better. Technical trend and relative performance For nearly a month, the medium-term technical trend of RBS has been negative with a price of GBp 26.1 with an adjusted technical reverse point of GBp 26.62. Using the DJ Stoxx 600 reference index, the four-week relative performance against the reference index is -12.1% (Money Center Banks, 2012). Given the negative technical trend, it is evident that underperformance for RBS is validated. Critically, this shows that majority of investors are interested in other stocks. Risk Analysis In order to assess the risk equity of RBS, several risk analysis tools will be used. This includes but not limited to beta, correlation, and volatility, and the risk factor in bear markets. Beginning with Beta as a risk measurement tool, a situation where beta is greater than 100 represents a more volatile and risky stock. For instance, a beta value of 1.93 indicates a 1% variation in indices, which happens to be the case with RBS. Similarly, correlation refers to the degree of similarity of stock fluctuation compared to the reference index (Money Center Banks, 2012). RBS has a correlation rate of 0.80 meaning that index variations explain 80% of its stock movements. On the other hand, volatility is used to measure the magnitude of low and high stock or index movements. RBS’ annualized volatility for April is 30.5% (Money Center Banks, 2012). Using the risk factor in bear markets to measure the behavior of RBS in less performing markets, it shows that RBS exhibits a tendency of amplifying the risky positioning of the group in situations of market decline. The risk factor in rising markets also depicts situation-sanctioned pressures for the RBS. Analysis of Ratios and Financial Reports Five-Year Plan Strategy The effects of the financial crisis uncovered several key issues that undermined RBS and these issues included risk concentration, leverage, and business stretches. The continued sale and rundown of assets weakened the performance of the RBS group (Royal Bank of Scotland Group, 2011). This necessitated the need to change the balance sheet by focusing on risk objectives. The five-year plan 2009-2013 was developed to focus on three key objectives (Essinger, 2009); Restoring RBS’s performance to undoubted standalone strengths Providing efficient service to customers Rebuilding sustainable value for all shareholders These goals are interdependent on one another because customers cannot be served in an unsafe and risky banking environment (Essinger, 2009). Equally, the banks’ standalone strength cannot be rebuilt without rebuilding shareholder value. RBS’ strategy of serving customers is embedded in different frameworks that guide the process of satisfying customer value and streamlining customer service prepositions. Creating sustainable strength for the bank started with the creation of improvements in liquidity and capital in 2009. By 2010, Risk Management objective was launched to aid the Group in approaching risk issues such as audit and risk functions. This has been fundamental in enabling the ban to create a safe, sustainable, and valuable banking environment to all people (Royal Bank of Scotland Group, 2011). Lastly, the creation of sustainable value to shareholders was developed to enable the bank to develop a strong foundation for all its core businesses. This option has been fundamental in enabling RBS to generate a 13% increase in equity return in FY2010 and aims to extend this figure by upwards of 15% by 2013. This is aimed at increasing confidence from the banks’ investments will generate increased va lues and core synergies (Rose, 2009). Importantly, realization of sustainable value is seen as a major move for convincing the UK government to sell its stake in the institution. Several measures have been taken to realize RBS’s strategic and core business objectives. RBS has targeted several market-leading franchises and market positions to improve customer satisfactions. Income growth by focusing on sustainable businesses is another move taken by the bank (Royal Bank of Scotland Group, 2011). Other key strategic moves include focusing on cost control and rigorous capital and cost allocation programs. Speaking financial measures, RBS reduced its balance sheet scale by de-risking and shrinking the Balance Sheet as a move for careful control of future growth. Measures have also been put in place to reduce over-reliance on wholesale markets to improve its liquidity reserve. On the other hand, realization of a strong capital base has been achieved through excess risk maintenance equity capital and running off-excessive risk concentrations. Progress so far RBS has managed to achieve several key accomplishments and economic improvements despite uncertain volatilities and tight monetary policies in several countries. RBS’s core businesses have remained resilient while the Group has managed to realize annualized cost savings of  £2.5 billion and expected to exceed  £3billion by 2013. The loan-on-deposit ratio by the end of 2010 was 117% and the reliance on wholesale funding reduced from  £250 billion in 2009 to  £157 billion in 2010 (Royal Bank of Scotland Group, 2011). On risk management, RBS has stood strong in the line of realizing four-risk objectives that include maintenance of capital adequacies, delivering stable growth in earnings, ensuring efficient and stable access to liquidity and funding (Royal Bank of Scotland Group, 2011). The risk management model has been concentrated on the management of liquidities and risks on the balance sheet. These measures have enabled the bank to record tremendous improvements towards overcoming the effects of the 2007-2011 financial crises. Conclusions and Recommendations The analysis conducted in this paper reveals that the failure of the Royal Bank of Scotland amidst the global financial crisis can be blamed on a liquidity run. On the other hand, the system-wide liquidity crisis was well rooted in the market uncertainty that banks could have lost. This factor was fundamental in determining the nature of the banks insolvency and capital inadequacies. Studies show that RBS had strong capital resources totaling  £68bn but registered loss of  £40.7 bn. According to a report by the Financial Services Authority in the UK Financial Services Authority, several key factors can be blamed for the failure of RBK in 2008 (Financial Services Authority Board Report, 2011). These factors were; Notable weaknesses in capital position of RBS and this was attributed to poor management decisions and inadequate global regulatory framework The acquisition of ABN AMRO without taking heed of possible risks Uncertainties and concerns over underlying asset quality of RBS Over-relying on risky short-term wholesale funding Substantial losses occurring from credit trading activities leading to the erosion of consumer and market confidence underestimation of how bad losses can affect structured credit the prevailing crisis in the banking sector Based on the information gathered and presented in this study, the future prospects for RBS are still difficult. First, the 84% government ownership means that the government will continue to dictate its operational activities including investment, operations, and financing thereby impeding strategic moves (Wilson, 2011). Credit write offs cannot guarantee the bank future profitability either and as well, the staff restructuring. The volatility of its risk portfolio also calls for important measures to be put in place. For this reason, I recommend that RBS do the following: Use its strengths and opportunities to overcome the threats and weaknesses Concentrate on the rebuilding and recovery plan in order to enhance its financial performance and gravitate its return to operating profits (Rose, 2009). Convince the government to sell its stakes in the Group Reduce its exposures to particular type of risks by forming a strong risk restructuring and management plan Strengthen its core business that will enable the institution to achieve its future objectives Invest in sustainable banking and corporate social responsibility initiatives Reference List Altunbas, Y., Ibanez, M. D. 2004. Mergers and Acquisitions and Bank Performance In Europe: The Role of Strategic Similarities European Central Bank, 1-35. Ashby, S. 2010. The 2007-2009 Financial Crisis: Learning the Risk Management Lessons, Financial Services Research Forum, Nottingham. Barth, G Caprio, G., and R Levine. 2006. Rethinking Bank Regulation: Till Angels Govern, Cambridge University Press, New York. Berezin, M. 2008, Emotions and the Economy, The Handbook of Economic Sociology. Second Edition, Princeton: Princeton University Press. Datamonitor Report, 2011, Royal Bank of Scotland Plc. Datamonitor August 2011 Elving, W., 2009. Corporate communication in the new era: confronting the financial crisis, Corporate Communications: An International Journal, 14 (1) Essinger, J. 2009. The Virtual Banking Revolution: The Customer, the Bank, and the Future. London: International Thomson Business Press. Financial Services Authority Board Report, 2011. The failure of the Royal Bank of Scotland. FSA Huisman, W. 2011, Corporate Crime and Crisis: Causation Scenarios, in Mathieu Deflem (ed.) Economic Crisis and Crime (Sociology of Crime Law and Deviance (16), pp.107-125 Kemal, M. U. 2011. Post-Merger Profitability: A Case of Royal Bank of Scotland (RBS). International Journal of Business and Social Science. 2 (5), pg. 157-162 Money Center Banks, 2012. Royal Bk.of SCTL.GP.PLC. MSN Money, 2012. Royal Bank of Scotland Group ADR representing 20 Ord Shs (NYSE). Mullineux, A. 2009. The regulation of British retail banking utilities, Journal of Financial Regulation and Compliance, 17 (4), pp.453 466 Oxera, 2011. Assessing State Support to the UK banking sector. Oxera Consulting ltd Rose, P. 2009. Commercial Bank Management. Boston: McGraw-Hill Royal Bank of Scotland Group, 2011. Annual Review and Summary Financial Statement 2010. RBS Royal Bank of Scotland Group, 2010. Independent Commission on Banking and response to issues paper. RBS. Sutton, A. Lannoo, K. and Napoli, C. 2010. Bank State Aid in the Financial Crisis: Fragmentation or Level Playing Field? Brussels: Centre for European Policy Studies The Times, 2009. Royal Bank of Scotland: the bank that sank, www.timesonline.co.uk (accessed 29/04/2012) Wilson, H., 2011. Royal Bank of Scotland Collapse: the 10 questions the FSA must answer. [Online]. Available at: http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8933151/Roy al-Bank-of-Scotland-collapse-the-10-questions-the-FSA-must-answer.html [accessed 29 April 2012] Worthington, S. Welch, P. 2011. Banking without the banks, International Journal of Bank Marketing, 29 (2), pp.190 – 201