GLOBAL FINANCIAL CRISIS

Implications of the Global Financial Crisis of 2007-2009 for the Management Of Banks

Implications of the Global Financial Crisis of 2007-2009 for the Management Of Banks

Introduction

The current financial crisis has its precedents: the discomfort of the European Monetary System in 1992/93, the 1995/96 Mexican shock or crash a decade ago in the states of Southeast Asian tigers. Financial and monetary crisis with global ramifications. Who takes the trouble to analyze the causes and effects of them hamstrung find parallels with today's financial markets.

Widening of Global economic imbalance e.g. the dollar as a reserve currency.

The financial crisis started in 2007 and still underway in 2011 is a financial crisis marked by a liquidity crisis or solvency crisis and a credit crunch . Initiated in July 2007, it originated in the bursting of asset price bubbles (including U.S. real estate bubble of the 2000s ) and losses of financial institutions caused by the subprime crisis . (Read 2009, 245)

Markedly in September 2008 by a fall in the stock markets and the collapse of several financial institutions, it causes an early systemic crisis and a recession in the entire planet . The public finances were heavily used to resolve this crisis. [] The deficit widened in many countries, after a decline in gross domestic product by 2.2% worldwide in 2009 . The United States, under pressure from public opinion and experts like Paul Volcker , considering structural reform of the financial sector to avoid a similar crisis from happening again. [] Meanwhile, in some countries such as China, bank lending rose sharply . [] Also, in early 2010, the influx of liquidity fears outbreak of new real estate bubbles in Chinese stock markets, bonds and metals . (Read 2009, 245)

Under-regulation of banks

The uncertainties on the direct and indirect obligations of financial institutions on credit risk, but also the fear of a general slowdown in corporate banking and investment, and highly profitable engines of growth in previous years , eventually led to a crisis of confidence, having experienced little precedent among banks. [][] These have been drying up their main sources of refinancing on the interbank market and the issuance of ABCP (asset-backed commercial paper).

[] On the interbank market , on which banks in surplus capital lend to those who lack it, the distrust between banks has itself led to a surge in interbank rates . Moreover, banks had set up in previous years funding structures, called SIV or conduit structured investment vehicles) that issued commercial paper short-term rates low asset-backed commercial paper) sold to investors. The funds raised were then lent long-term rates higher, allowing a margin of interest. But these short-term borrowing should be renewed regularly (every three months). However, once the crisis of confidence in the banks involved, investors stopped funding the ABCP, forcing banks to fund themselves. The liquidity crisis has prompted central banks, European Central Bank (ECB) and Federal Reserve USA (Fed) first, to make massive injections of liquidity on the interbank market ...