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Global Financial crisis 2008 PDF

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Added on  2021-01-02

Global Financial crisis 2008 PDF

   Added on 2021-01-02

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BANKERS' BONUSES WERETO BLAME FOR THE 2008FINANCIAL CRISIS
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Table of ContentsINTRODUCTION...........................................................................................................................1MAIN BODY ..................................................................................................................................1CONCLUSION................................................................................................................................4
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INTRODUCTIONFinancial crisis refers to situation in which financial institutions are not trusted any moreand process of lending stops. At the same time difficulties are faced by consumers, banks,companies etc. Global financial crisis of 2008 affected many countries including UK wherebankers' bonus was blamed for that. MAIN BODY Global Financial crisis occurred in 2007-08 was mainly associated with banking field asfinancial assets of most of investors suffers from deprivation of financial assets. Thus theystarted to pull out their money from banks due to fear of decrease in nominal value of assets andalso started to draw back amount form savings account. Bonus scheme in UK during financialcrisis reflected major changes and complexity in structure (Bruce and Skovoroda, 2013). Thus atthat time actions of Government of UK towards administration of bonuses was not appropriateand there were no control measures were taken into account. For the fallout in 2008, pays andbonuses of executives in banks and financial institutions were identified as a partial causeaccording to reporting by official documents. Adair Turner, Chairman of Financial ServicesAuthority (FSA) in UK claimed that improper bonus structure encouraged inappropriatebehaviour and this ultimately lead to financial crisis of 2008. A study was conducted on thecontroversy of pay and bonus structure of executives in companies of financial services sector.This investigation shows that banks laid emphasis on incentives of executives to take unjustifiedrisk for causing financial crisis. As compared to other sectors of economy, bonus andcompensation in financial services sector was increased. This increment was done in 2006, justbefore financial crisis 2008 (Domitrovic, 2012). According to that study, compensation of CEOrise up by 131.78%, an increment of about 80.41% in pay of total board and 41.38% increase incompensation of employees. Average pay of financial services sector ranked second after non-cyclical service sector when comparison is done. In contrary, a research conducted by Dr SarahJewell, an economist claimed that although compensation and bonus in financial services sectorare higher when compared to other sectors but there is no proof to blame bankers' bonuses forfinancial crisis 2008. Also a lack of evidence for the allegations on banks to take risks for profits1
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