The debt strategy pursued for cost minimization has jeopardized the fiscal situation of these countries and the financial stability of the Euro zone. In late 2010, the sovereign debt crisis had worsened and peripheral Euro zone countries like Greece and Ireland were forced to pay very high interest costs as they faced very significant adverse movements in yields. There were apprehensions of sovereign defaults and concerns about stability and future existence of Euro were expressed. To address the situation, Europe’s finance ministers created European Financial Stability Facility with a
Introduction The current financial crisis happened on 2008 and lasted for quite a while. It caused different levels of economic recessions in varying regions all over the world. Government officials of financial institutions and economists try to rectify the financial mistakes and lower the risk of future financial crisis. This essay will take United Kingdom financial system for instance, analysis its financial regulations. Firstly, it gives the background of the financial crisis.
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. Diamond and Rajan (2009) found that investment misallocation is the proximate cause of the credit crisis.
Gurtner found that “Marco-economically the crisis manifested…in trade and payment balances, dwindling currency reserves, currency devaluations, increasing rates of inflation, higher indebtedness and soaring public budget deficits” (Gurtner, 2008). Although, Gurtner have his own beliefs about how the financial crisis effects the developing countries, however, in the article “Financial Crises: Explanations, Types, and Implications” Stijn Claessens and Ayhan Kose have different beliefs about financial crisis and developing countries. Claessens and Kose simply explain “financial crisis is often associated with…substantial changes in credit volume and asset prices; severe disruptions in financial intermediation and the supply of external financing to various actors in the
The global financial crisis can be dated back to July 2007 where the well-known term “credit crunch” had happened. The credit crunch was the period where investors’ lack of confidence in the US housing system caused a liquidity crisis. This happened because of defaulted sub-prime loans causing banks to repossess houses and lands making them less valuable than what they originally sold them for. Many can say that this was the initiation for the crisis but the effects of the crisis grew more intense after the stock market crash and the collapse of the Lehman Brothers. Economies around the world were affected by the collapse of large financial institutions, the bailout of banks by national governments, and downturns in stock markets around the world.
I. Introduction The current financial crisis was triggered by subprime mortgage in the United States. This lead not only to a large amount of mortgage default but also other problem suc as, credit card and store loans. The result was huge losses in financial institution in the United States Europe and Asia, because of financial liberalization had enabled the transnational transaction of “bad” assets. Some people argue that this crisis was aggravated by Fair Value Accounting because it prices an asset based on its current value.
By reference to strategic management literature, discuss the extent to which events associated with the ‘credit crunch’ and banking crisis of 2008 have witnessed a fundamental re-appraisal of banks’ and building societies’ organisational purpose and corporate governance. In the previous 10 months, there has been a worldwide credit crunch which has affected every individual and organisation. A good definition of credit crunch would be one provided by Simon Nixon (2008), “The credit crunch started in August 2007. The term refers to the sudden contraction of credit across the financial system as banks became increasingly reluctant to lend. It has left individuals and companies facing potentially higher interest costs, or struggling to get access at all.” The credit crunch can occur for several reasons such as; “sudden increase in interest rates, direct money controls by the government or drying up of funding the capital market”, (www.thismoney.co.uk).
Impact on EU Governments The GFC caused a decrease in government revenues, but an increase in government expenditures in terms of GDP in 2008 and 2009, which significantly deteriorated deficits ... ... middle of paper ... ...wever, at the end of 2008, Germany was hit by the crisis through two channels; 1) Finance as many banks were overexposed to toxic speculative papers originating in the U.S and Ireland. Both private banks, such as Commerzbank and Hypo Real Estate, public banks had to be rescued by the government’s public guarantees costing €400 billion and 2) Export industry as the international demand decreased significantly . Although, the spending in the financial sector could harm Germany’s government debt in short-term, the debt was expected to maintain its position with low interest rates and capital gains from privatisation. With a strong financial position, Germany was expected a balanced budget, after spending on recovery plans. Though, Germany’s government debt to GDP kept rising since 2008 until 2011 from 64.9% to 82.5%, then decreased by 2.5% from 2011 to 2012 .
Between 2000 and 2007, there was a sharp increase in savings available for investment . This tempted banks and consumers to do high-risk lending and borrowing practices. When these bubbles burst, prices of commercial property dropped, causing banks in the U.S. and Europe to fall into debt. This created a domino effect on the economy. Consumers as well as governments were no longer able to borrow and spend.
The financial crisis in 2008 that led to a crisis in the banking sector, and which nearly led to a complete collapse of the economy globally, was not only caused by changes in the regulatory, regulation and legislation oversight, but also fiscal and monetary policies. Many believe that, expansion of excesses monetary and irresponsibility of some of the government agencies led to the crisis. According to reports by Taylor (2009), excesses monetary policies were the main cause of the 2008 financial crisis. He reports that, in 2003-2005 the federal reserves held its interest rate target below the well known monetary rules that state that historical experiences should be the base of a good policy. He says that, Federal Reserve tracked their rates according to what worked better in the earlier decades, instead of lowering the rates in order to prevent the crisis.