The 2008 Financial Crisis In The Financial Services Industry

3177 Words13 Pages
Introduction In September 2008, the stock market crashed. The bursting of the U.S housing bubble caused the values of securities tied up to U.S real estate pricing to plummet, damaging financial markets globally. The complex relationship of policies that encourage home ownership, providing easier access to loan, overvaluation of toxic sub-prime mortgages, questionable trading practises and compensation structures that prioritise short term profit over long term sustainable value creation triggered a financial crisis that still has not been resolved. The world’s financial markets were in meltdown. The consequences of the 2008 financial crisis are far-reaching. Not only did it damage the financial service industry itself, but also the governments. But the worse off were individuals. As financial organisations collapsed one after another, people lost their jobs, their pensions, investments and savings. After all, we were all affected by it as a consumer of financial products. The public lost their faith in financial services industry. Many reasons for the 2008 financial crisis have been suggested; high risk complex products, lack of transparency, undisclosed conflicts of interest, the failure of regulators and credit rating agencies and systematic failures of corporate governance and risk management within the organisations. Although the cause for the 2008 crisis is evidently a combination of the above, it could be argued, that the underlying cause of the crisis was a complete collapse of ethical behaviour across the Financial Services industry. This essay looks at the Agency Theory and the issue of executive remuneration arising from it in the context of Financial Services Industry. It highlights the ethical issues surr... ... middle of paper ... .... Corporate social responsibility is high on the companies’ agenda. More robust corporate governance is introduced. The governments globally have tightened regulations with the attempt to ensure systems are place for risk control and to restore faith in financial services industry. However, judging by the number of scandals since the crisis, it does not appear to be working because the underlying issues with corporate culture and behaviour remain unaddressed. Although the industry is working hard to change the pre-crisis culture, for change to be permanent, it requires a concentrated effort of all parties - regulators, corporations and individuals - to establish and strengthen a culture of integrity. This will not happen overnight. It will require years of persistent and continuous effort from all parties involved to create a lasting change in financial markets.
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