Wait a second!
More handpicked essays just for you.
More handpicked essays just for you.
Financial Crisis and its Impact on Financial Institutions and Markets
Don’t take our word for it - see why 10 million students trust us with their essay needs.
Over the last two decades many developing countries have liberalized their financial system with the aim of improvement in the financial development and economic growth. While many countries enjoyed economic growth, some of them experienced rapid credit growth and some experienced financial (banking) crises. As a result, some attribute banking crises mainly to financial liberalization ( Kaminsky & Reinhart, 1999), while others include other macroeconomic variables such as exchange rate regimes. A greater part of the empirical literature focused on the impact of financial liberalization and exchange rate regimes on the likelihood of banking crises, however the literature, to the best of my knowledge, has ignored the impact of exchange rate regime on financial liberalization. The next section of the paper presents a critical analysis of one theoretical paper and two empirical studies of the causes of banking crises. The prospect topic for dissertation is discussed in Section III. II. Critical Analysis 1. Amri,P.D., Prabha,A. and Wihlborg, C. 2014. What Makes High Credit Growth Harmful? Leverage, financial regulation and supervision, and banking crises. The literature has identified credit expansions to the private sector as an important predictor of banking crises. Amri et al (2014) in their paper investigate the role of the private sector in triggering financial instability. Most financial crises were preceded by credit booms (eg. the Asian crisis in 1997-98 experienced rapid credit growth). However, the authors point out that only the minority of all credit booms are followed by a subsequent banking crises. They argue that high credit growth is more crises prone if the financial system is characterized by fragility and distorti... ... middle of paper ... ...s Angkinand & Willet (2011) attempt to investigate the impact of the exchange rate polices on the likelihood of banking crises. However, there is no empirical study attempts to investigate the two linkages together (financial liberalization and exchange rate policies) on banking crises. My main focus is to combine and extend the work of Angkinand et al. (2010) and Angkinand & Willet (2011) studying the impact of the different exchange rate policies on financial liberalization on the likelihood of banking crises in developing countries. I would conduct the study only on developing countries because they experience more banking problems than developed countries. For example, banks own larger share of the total financial assets in developing countries than advanced countries and regulatory and supervisory systems are less sophisticated in developing countries.
The financial crisis of 2007–2008 is considered by many economists the worst financial crisis since the Great Depression of the 1930s. This crisis resulted in the threat of total collapse of large financial institutions, the bailout of banks by national governments, and downturns in stock markets around the world. The crisis led to a series of events including: the 2008–2012 global recessions and the European sovereign-debt crisis. The reasons of this financial crisis are argued by economists. The performance of the Federal Reserve becomes a focal point in this argument.
The credit crisis is referred to as economic downturn by credit squeeze, provision of doubtful debt and bankruptcies among others. (IMF, 1998) Credit crisis is known as a credit crunch, it is an extension of recession. According to the Ocaya (2012), Credit crisis is a sudden shortage of loan and tightened the requirement of economy and society needs of getting loan from financial institutions. In such situation, lender started keeps the cash and stop lending money because they are worry about a large of debtor bankrupt and mortgage defaults. Lender had adjusted the interest rate of borrowing to unaffordable rate. Credit crisis decrease the total demand and fall in supply, therefore, it constrains the growth of the economy. The credit crisis is begun in the early 2006 when several events relating the financial system went wrong in the United States of America. The factors leads to credit crises are complex with varying weight.
The presence of systemic risk in the current United States financial system is undeniable. Systemic risks exist when the failure of one firm may topple others and destabilize the entire financial system. The firm is then "too big to fail," or perhaps more precisely, "too interconnected to fail.” The Federal Stability Oversight Council is charged with identifying systemic risks and gaps in regulation, making recommendations to regulators to address threats to financial stability, and promoting market discipline by eliminating the expectation that the US federal government will come to the assistance of firms in financial distress. Systemic risks can come through multiple forms, including counterparty risk on other financial ...
As long as “securitization”, “too big to fail” are not resolved, there will absolutely be more financial crisis in the future. The impact of this financial crisis is world-wide. But after the crisis, how many of them learn to earn less money that will against their desire? Lehman Brothers is like a carriage that goes on and on, plundering trophies and valuables, going uphill. They never need to consider hit the break and slow down, or plunder less; while they passed the climax and started to go downhill, they are no longer able to hit the break. The trophies and valuables became the burden that accelerated the
Ewelina Cachro Professor Bateman Fin 320 6 October 2014 Assignment 1 The Great Recession of 2007-2009 was a time of worry, of failure, and of uncertainty throughout the United States economy, as well as the entire world. The bankruptcy of Lehman Brothers added onto to the financial instability of the economy. The causes and effects of this significant event were many, but some of the major ones will be named in the upcoming paragraphs.
Cabral, R. (2013). A perspective on the symptoms and causes of the financial crisis. Journal of Banking & Finance, 37, 103-117
This essay will examine the causes of the 2008 Global Financial Crisis (GFC) from a Marxist perspective. This paper will specifically examine and critique how Marx’s Theory of Crisis can be applied to understand and interpret the underlying structural causes of the 2008 Global Financial Crisis.
This was the first global financial crisis since the Great Depression of the 1930s; it spread at an un-parallel rate across the world (Claessens et al, 2013). In the aftermath of the Great Depression it was universally believed by economists that the unregulated financial markets were to blame as they were fundamentally unstable, subject to manipulation by bankers, and capable of triggering deep economic crises and political and social unrest (Crotty, 2009). These are the same issues that occurred following the aftermath of the financial crisis 2007. It can be argued that the current crisis is the latest stage in a series of financial boom and bust cycles, in which there is a shift from light to tight financial market regulations. The global financial crisis (GFC) is seen as the deepest post-World War II recession (Blankenburg & Palma, 2009) with the United States being the epicenter of the crisis due to the housing bubble burst and sub-prime mortgages (McKibbin & Stoeckel, 2010). This essay will be focusing on the housing bubble, sub-prime mortgages, and the interconnectedness of the global banking system, the lack of transparency and regulation within the finance industry as the main causes for the GFC.
The "subprime crises" was one of the most significant financial events since the Great Depression and definitely left a mark upon the country as we remain upon a steady path towards recovering fully. The financial crisis of 2008, became a defining moment within the infrastructure of the US financial system and its need for restructuring. One of the main moments that alerted the global economy of our declining state was the bankruptcy of Lehman Brothers on Sunday, September 14, 2008 and after this the economy began spreading as companies and individuals were struggling to find a way around this crisis. (Murphy, 2008) The US banking sector was first hit with a crisis amongst liquidity and declining world stock markets as well. The subprime mortgage crisis was characterized by a decrease within the housing market due to excessive individuals and corporate debt along with risky lending and borrowing practices. Over time, the market apparently began displaying more weaknesses as the global financial system was being affected. With this being said, this brings into question about who is actually to assume blame for this financial fiasco. It is extremely hard to just assign blame to one individual party as there were many different factors at work here. This paper will analyze how the stakeholders created a financial disaster and did nothing to prevent it as the credit rating agencies created an amount of turmoil due to their unethical decisions and costly mistakes.
If financial markets are instable, it will lead to sharp contraction of economic activity. For example, in this most recent financial crisis, a deterioration in financial institutions’ balance sheets, along with asset price decline and interest rate hikes increased market uncertainty thus, worsening what is called ‘adverse selection and moral hazard’. This is a serious dilemma created before business transactions occur which information is misleading and promotes doing business with the ‘most undesirable’ clients by a financial institution. In turn, these ‘most undesirable’ clients later engage in undesirable behavior. All of this leads to a decline in economic activity, more adverse selection and moral hazards, a banking crisis and further declining in economic activity. Ultimately, the banking crisis came and unanticipated price level increases and even further declines in economic activity.
The recent Global Financial Crisis (GFC) initially began with the collapse of credits and financial markets, which caused by the sub-prime mortgage crisis in the US in 2007. The sub-prime mortgages were given to high-risk lenders (with bad credit history) who were in danger of defaulting, which eventually caused a global credit crunch, where the banks were unwilling to lend to each other. In October 2008, the collapse of the major financial institutions and the crash of stock markets marked the peak of this global economic slowdown (Euromonitor International, 2008).
Radelet, Steven, and Jeffrey D. Sachs. “Currency Crises.” The National Bureau of Economic Research. National Bureau of Economic Research, Jan. 2000. Web. 10 Dec. 2013. .
Velde,D.K (2008). The global financial crisis and developing countries. Available at: http://www.odi.org.uk/resources/download/2462.pdf (Accessed: 5th August 2010).
Warwick J. McKibbin, and Andrew Stoeckel. “The Global Financial Crisis: Causes and Consequences.” Lowy Institute for International Policy 2.09 (2009): 1. PDF file.
At the same time, the amount of non-performing loan ratio has also increased from 1.9% in 2015 to 2.4% in 2016 that requires banking institutions to pay more attention and to raise caution on risky sectors in order to strengthen the effectiveness of assets quality management (Supervision Annual Report, 2016). This can be resulted from the lack of sufficient legal framework for the institution governance and its operation monitoring. Therefore, this has brought the central bank to pay more attention to the performance of the banking and financial institutions in order to avoid the bankruptcy. To deal with the doubt concerned, there are few questions the study is going to figure out what are the problems of the banking supervision at the National Bank of Cambodia and how the central bank do to manage this issues.