Causes for the Financial Crisis of 2008

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The financial crisis in 2008 was been considered as the worst financial crisis since the Great Depression. One of the major reasons of the crisis was that banks in the States were given permission by the repeal of the Glass-Steagall legislation, which allowed banks to affiliate with insurance, real estate, security. The goal was to create financial firms “better equipped to compete in global financial markets”. With the firewall between commercial banks, which make loans and take deposits, and investment banks, which underwrite securities removed, an opportunity rise for banks to create and push more money and eventually to speculate on financial markets. The financial crisis reminded us that the banking industry has a serious influence on the economy and it should be under strict regulations. Many ideas have come up since the financial crisis such as breaking up international banks by separating investment and commercial once again. There are many arguments that favour and disagree with the idea. A counter argument has been introduced by the British government is to force the retail and investment-banking arms of universal banks to have their own capital buffers, protecting deposit holders from losses in the investment arm but retaining some diversification benefits instead of breaking up universal banks. The size of universal banks makes them dangerous with the likes of Citigroup, RBS and Deutsche Bank which all have over 1 trillion dollars in assets and simply dividing them in to two would not solve the problem. The British government have taken huge steps on banking legislations with giving regulatory oversight of banks to the Bank of England. The Bank of England will be running a new financial supervision over the banking i... ... middle of paper ... ...orqHdy. Last Accessed 28 March 2014. Lilico,A. (2011). Sir John Vickers' banking report – some improvements on the Interim Report, but one continuing major lacuna. Available: http://blogs.telegraph.co.uk/finance/andrewlilico/100011889/sir-john-vickers-banking-report-some-improvements-on-the-interim-report-but-one-continuing-major-lacuna/. Last Accessed 28 March 2014. Unknown. (2011). UK bank regulation: back to the future. Available: http://www.ft.com/cms/s/0/63802160-9834-11e0-ae45-00144feab49a.html#axzz2vxARzkrG. Last Accessed 28 March 2014. Unknown. (2012). Prudential Regulation Authority. Available: http://www.bankofengland.co.uk/PRA/Pages/default.aspx. Last Accessed 28 March 2014 Posner,A. (2009). How Should Banking Be Regulated?. Available: http://www.theatlantic.com/business/archive/2009/05/how-should-banking-be-regulated/17271/. Last Accessed 28 March 2014.
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