Uncategorized

Analysis belonging to the Latest Financial Crisis and the Banking Industry

admin

octombrie 13th, 2016

nici un comentariu

Analysis belonging to the Latest Financial Crisis and the Banking Industry

The existing personal crisis started as aspect of the global liquidity crunch that transpired in between 2007 and 2008. It is really thought that the crisis had been precipitated via the extensive worry produced because of economical asset offering coupled using a enormous deleveraging inside finance establishments with the primary economies (Merrouche & Nier’, 2010). The collapse and exit for the Lehman brothers a multi-national bank in September 2008 coupled with significant losses reported by major banking establishments in Europe and the United States has been associated with the worldwide fiscal crisis. This paper will seeks to analyze how the global financial disaster came to be and its relation with the banking field.

Causes with the economic Crisis

The occurrence for the worldwide economical disaster is said to have had multiple causes with the foremost contributors being the finance establishments also, the central regulating authorities. The booming credit markets and increased appetite of risk coupled with lower interest rates that had been experienced within the years prior to the financial crisis increased the attractiveness of obtaining higher leverage amongst investors. The low interest rates attracted most investors and money establishments from Europe into the American mortgage market where excessive and irrational risk taking took hold.

The risky mortgages were passed on to personal engineers inside of the big fiscal establishments who in-turn pooled them together to back less risky securities in form of collateralized debt obligations (Warwick & Stoeckel buyessaylab.com/write, 2009). The assumption was which the property rates in America would rise in future. However, the nationwide slump inside American property market in late 2006 meant that most of these collateralized debt obligations were worthless in terms of sourcing short-term funding and as such most banks were in danger of going bankrupt. The net effect was that most of the banking institutions had to reduce their lending into the property markets. The decline in lending caused a decline of prices around the property market and as such most borrowers who had speculated on future rise in prices had to sell off their assets to repay the loans an aspect that resulted into a bubble burst. The banking establishments panicked when this happened which necessitated further reduction in their lending thus causing a downward spiral that resulted to the global economic recession. The complacency because of the central banks in terms of regulating the level of risk taking on the personal markets contributed significantly to the crisis. Research by Merrouche and Nier (2010) suggest which the low policy rates experienced globally prior to the disaster stimulated the build-up of money imbalances which led to an economic recession. In addition to this, the failure with the central banks to caution against the declining interest rates by lowering the maximum loan to value ratios for the mortgages banking institution’s offered contributed to the financial crisis.

Conclusion

The far reaching effects that the fiscal crisis caused to the global economy especially within the banking marketplace after the Lehman brothers bank filed for bankruptcy means that a comprehensive overhaul on the international economical markets in terms of its mortgage and securities orientation need to be instituted to avert any future money disaster. In addition to this, the central bank regulators should enforce strict regulations and policies that control lending inside the banking community which would cushion against economic recessions caused by rising interest rates.

Comments are closed.