Essay about Financial Globalization and Risk

Essay about Financial Globalization and Risk

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From the beginning of the 1990s, the global financial system has entered a phase of unprecedented restructuring, marked by the increasing integration of financial markets and increased economic interdependence. This process, known under the name of financial globalization allows companies better access to financing, offers investors a greater possibility of investment and thus increases the liquidity of the global economy.

However, this financial globalization has enormous risks. Indeed, creating an interconnection between national financial systems, it facilitates the transmission of shocks, contagion . Thus, a local imbalance turns immediately into a systemic crisis as shown by the recent financial crisis. Disruption in the financial system generates numerous losses to the economy. According to the IMF (2010), the financial crisis of 2007-2008 was the cause of a recession that resulted in a cumulative loss of production of about 25% of world GDP. The failure of the financial system further obliges governments to inject significant through bailouts resources. In particular, the North American and European governments spent an average of between 3 and 5 % of GDP to prevent the collapse of the financial system (Gottlieb et al , 2012).

In this context, the adoption of effective regulatory measures, able to address the vulnerability of the financial system becomes a major issue. In this idea, policy makers have been constantly developing and promoting measures to safeguard the financial system : this is called control . The latter has a twofold component, namely, a macro prudential perspective and micro perspective. The aim is to prevent systemic financial crises, to avoid losses in GDP for the first and limit indivi...

... middle of paper ...

...west 15% of all the quotes collected are eliminated. The remaining rates will be averaged and rounded to three decimal places. Euribor is determined and published at about 11:00 am each day, Central European Time. The Euribor rates are important because these rates provide the basis for the price or interest rate of all kinds of financial products, like interest rate swaps, interest rate futures, saving accounts and mortgages.


BLUM J.M. (1998), ’’Do capital adequacy requirements reduce risks in banking?’’
Journal of Banking & Finance, 23 (1999) pp 755-771.

BLUM J.M. (2007),’’ Why ‘Basel II’ may need a leverage ratio restriction’’, Journal
of Banking & Finance 32 (2008) pp 1699–1707.

BORIO C. (2003), ‘’Towards a macro-prudential framework for financial supervision
and regulation?’’, Economic Studies, vol. 49, n° 2/2003, pp. 181-216.

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