he purpose of this chapter is to identify the general determinants of bank profitability. The evaluation of profitability has been done as a complex evaluation of earning and expenses which include tough cost control and new protection commission.

Further, factors through which profitability can be calculated have been identified as firm level, industry-level and country level determinants along with factors that affect bank income and expenses. These chapters also describes relevant literature review and on the basic of part study. An impressive number of studies have been conducted in single country and panel country framework. These studies have a top let internal and external factor to determine bank performance. However, there are certain limitations regarding past studies. Hence, this chapter also describes the contribution of existing literature to this study.

Chapter 3 OVERVIEW OF THE U.K BANKING SECTOR

3.1 INTRODUCTION

3.2 Aims and objectives:

The core objective of Bank of England is two fold. They are:

A. Price Stability:

The first and foremost objective of the Bank of England is to bring the currency stability in the country. Currency stability means stabilizing the value of home currency in relation to currencies of other countries. This currency stability will be followed by price stability domestically which is the primary goal of the Apex Bank of the country. In bringing the stability of prices and subsequently the currencies, interest rates play a pivotal role. The government of U.K. has setup a target of controlling inflation at 2% level, and to achieve this target of the Government, the Central Bank decides short term interest rates i.e., interest rates should be fixed every month by taking into consideration various economic variables. The ultimate aim is the economic growth and developments of the country as a whole.

The next core objective of Bank of England is to achieve the financial stability. Financial stability indicates the stability of the capital market. Capital market should be stable in the sense that it denotes favourable prevailing atmosphere for the smooth carrying of various activities like production, distribution, employment and marketing. Financial instability is an indicator of recession and downward movement in which situation there would prevail unemployme