Analysis within the Present-day Financial Crisis together with the Banking Industry

The active financial disaster began as section belonging to the intercontinental liquidity crunch that occurred around 2007 and 2008. It’s thought that the crisis experienced been precipitated by the intensive panic generated by means of finance asset marketing coupled with a immense deleveraging inside economic institutions for the major economies (Merrouche & Nier’, 2010). The collapse and exit with the Lehman brothers a multi-national bank in September 2008 coupled with significant losses reported by premier banking establishments in Europe in addition to the United States has been associated with the worldwide economic crisis. This paper will seeks to analyze how the global financial disaster came to be and its relation with the banking marketplace.

Causes for the fiscal Crisis

The occurrence belonging to the worldwide financial crisis is said to have experienced multiple causes with the most important contributors being the economic institutions as well as central regulating authorities. The booming credit markets and increased appetite of risk coupled with lower interest rates that had been experienced with the years prior to the financial crisis increased the attractiveness of obtaining higher leverage amongst investors. The low interest rates attracted most investors and personal establishments from Europe into the American mortgage market where excessive and irrational risk taking took hold.

The risky mortgages were passed on to economic engineers inside of the big monetary establishments who in-turn pooled them together to back less risky securities in form of collateralized debt obligations (Warwick & Stoeckel, 2009). The assumption was which the property rates in America would rise in future. However, the nationwide slump in the American property market in late 2006 meant that most of these collateralized debt obligations were worthless in terms of sourcing short-term funding and as such most banks were in danger of going bankrupt. The net effect was that most from the banking establishments had to reduce their lending into the property markets. The decline in lending caused a decline of prices around the property market and as such most borrowers who had speculated on future rise in prices had to sell off their assets to repay the loans an aspect that resulted into a bubble burst. The banking institutions panicked when this happened which necessitated further reduction in their lending thus causing a downward spiral that resulted to the worldwide economic recession. The complacency through the central banks in terms of regulating the level of risk taking around the money markets contributed significantly to the crisis. Research by Merrouche and Nier (2010) suggest which the low policy rates experienced globally prior to the disaster stimulated the build-up of economic imbalances which led to an economic recession. In addition to this, the failure by the central banks to caution against the declining interest rates by lowering the maximum loan to value ratios for the mortgages banking institution’s offered contributed to the money disaster.

Conclusion

The term papers sale far reaching effects that the economical disaster caused to the worldwide economy especially from the banking marketplace after the Lehman brothers bank filed for bankruptcy means that a comprehensive overhaul belonging to the international economical markets in terms of its mortgage and securities orientation need to be instituted to avert any future economical crisis. In addition to this, the central bank regulators should enforce strict regulations and policies that control lending from the banking community which would cushion against economic recessions caused by rising interest rates.