Financial Markets and Institutions
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Added on 2020-10-22
Financial Markets and Institutions
Added on 2020-10-22
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FINANCIAL MARKETSAND INSTITUTIONS
TABLE OF CONTENTSINTRODUCTION...........................................................................................................................1FINANCIAL CRISIS OF 2007-2010..............................................................................................1Article 1: analysis of financial crisis of 2007-2010.....................................................................1Article 2: A Bird’s Eye View The Financial Crisis of 2007-2009: causes and remedies...........3Article 3: The role of Banks in the subprime financial crisis......................................................5Article 4: The financial crisis of 2007-2009 causes and contributing circumstances.................7Article 5. Causes of Fraud in Financial Crises: Evidence from the Mortgage-Backed SecuritiesIndustry........................................................................................................................................9CONCLUSION..............................................................................................................................12REFERENCES..............................................................................................................................13
INTRODUCTIONFinancial institutions play vital role for conducting financial transactions such asinvestments, loans and deposits. Each and every entity must have to deal with such institutionswhich is also on regular basis because it includes everything which is from taking loan toexchanging currencies. Some major categories of these organisations includes commercial banks,investment banks, insurance companies, brokerage and investment companies. Thus, thisassessment will evaluate the role of financial markets and institutions in the cause of resolutionsto financial crisis between 2007-2009. In this report, such evaluation will be done with thesupport of articles so that proper analysis on role of financial organisations will get developed. FINANCIAL CRISIS OF 2007-2010Article 1: analysis of financial crisis of 2007-2010This is the paper which provides a systematic reviews and analysis of financial crisis in theyear 2007-2010. The main object of this paper is to examine the various aspects of crisis whereanalysis will get develop on growth of housing bubble, easy credit conditions, subprime lending,predatory lending, deregulation and taxation, incorrect risk pricing, collapse of shadow bankingsystem and systematic risks. Further, this paper also discusses about crisis impact on financialinstitutions and financial wealth in U.S, and on the global economy including Iceland, Hungary,Russia, Spain and Dubai.Introducing financial crisis:According to the views of Chang (2011) between the year 2007-2010, there has been asevere financial downturn which has impacted the economy of whole world. Economists of theworld generally prefer such period as “The Great Recession” and it is still a debatable topicamongst them. This is the period of major corporation failure where large decline in the value ofasset has been found. There are substantial government interventions across the globe because ofmajor decline in worldwide economy. Author stated that between the year 2006-2009 has been aperiod of peak where global housing bubble collapsed and in accordance with the case- SchillerHome Price Index, it is being analysed that home price in US have dropped with approx. 40%which has caused huge damage to financial institutions across the globe. Stock prices all over theworld gets impact and they suffered a large downfall in 2008. This is the era where solvency ofmajor financial intuitions has also been suffered and liquidity in market of credit dried up.During this period growth across the world and credit markets tighten up with the decline in1
international trade. Various government banks and international organisations tried to developvarious plans which includes fiscal expansions, monetary expansion and institution bailout. Role played by financial institutions:According to Drew (2018) During this period the U.S. Federal reserve and central banksof the world have taken various steps for expanding supplies of money so that an attempt will getdevelop to avoid the risk of deflationary level in which situation like lower wages and higherunemployment will get obtained across the world. The credit freeze brought a global financialsystem in order to brink collapse. However, during the quarter of 2008, central bank haspurchased US$2.5 trillion of government debt and private assets which are of no use from banks.Thus, this step was considered as the largest action in the history of world where largest liquidityinjection has taken to mitigate financial crisis across the world. Financial Stability Board (FSB)will have taken the leading role for coordinating government regarding development of newglobal standards so that effective regulation and supervision will get develop to mitigate suchcrisis across the world.Such standards will then have adopted at national level where IMF has taken theresponsibility to monitor implementation of such standards. The U.S. Federal reserve institutionconducted almost $1.2 trillion emergency commitments in order to stabilise the financial sector.Such interventions include the safety net for commercial banks, investment banks and forbrokerage loans and for purchasing security assets as well. Such lending by internationalfinancial institutions will result in national fiscal stimulus efforts which target those countrieswho are in need. All the financial institutions like International monetary fund (IMF), the worldbank, inter-American development bank (IDB), Andean Development Corporation (CAF) andLatin Reserve Fund all have increases lending to region which is only for short term basis withthe goal of providing credit to private sector, bank recapitalisation. This is the strategy which hasdevelop to expand economy of countries all over the world. Another strategy which has taken by the financial institutions for mitigating financialcrisis is to provide low interest rate and to made credit more accessible. This is the strategywhich enables the consumers for increasing their borrowings. In this situation financialinstitutions invested in the mortgage market where loans related to mortgage and servicing arebought and sold between the investors and originators. This is the market which is extremelylarge and liquid. Thus, in this way financial institutions will able to manage the flow of money in2
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