Finance Report: Causes, Impacts, and Reforms of GFC

This report provides a comprehensive analysis of the Global Financial Crisis (GFC). It begins by exploring the various causes of the crisis, including excessive bank lending, speculation in financial markets, debt accumulation, and liquidity mismatches. The report then discusses the potential for the GFC to be repeated, examining factors such as stock market crashes, housing market fluctuations, and business credit. The report further investigates the scale and impact of the GFC on different economies, with a focus on Australia and China, highlighting the effects on manufacturing, trade, and unemployment. It also covers the impact on Gulf countries, including increased finance costs and tight liquidity. Finally, the report examines the reforms implemented to address the crisis, such as increased bank capital requirements, ring-fencing, and banking reform acts, concluding with an overview of the crisis's effects and the measures taken to mitigate future risks.

Finance Question

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY ..................................................................................................................................1
The possible causes of the financial crisis..................................................................................1
Discussion about if GFC could be repeated again......................................................................2
The scale and impact of GFC in economies of different countries.............................................4
CONCLUSION ...............................................................................................................................6
.........................................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Global financial crisis means a worldwide period of money-based difficulty experienced
by markets and people who use a product or service (Sargent-Cox, Butterworth and Anstey,
2011). A worldwide major money monetary problem is very hard surrounding conditions to
succeed in since possible peoples tend to reduce their instance of buying things for money. For
example, sub prime mortgage case, Lehman brothers' collapse are famous examples of global
crisis. This report Includes various causes of financial crisis and discussion about if it could be
repeated again. Explanation of scale and Impact of GFC in different economies also covered in
this report. Actual and proposed reforms are evaluated for identification. Global financial crisis
also called great depression situation in economy.
MAIN BODY
The possible causes of the financial crisis.
The great depression was the deepest and longest-lasting economic downturn in the
western industrialized world. It mainly started after the stock market crashes. Americans were
unemployed and nearly half of the banks of country got failed.
Causes of financial crisis: The great depression was lasted from 1929 to 1939 and was a
very hard economic condition in the history of country (Bancel and Mittoo, 2011). As the
countries start downturn but the truth is that many things caused for that not even a single event.
Some of the causes are as follows:
1. Banks created too much money: Every time a bank makes a new loan. Apart from that,
a new money is created and huge amount of loan was credited to the customers as a result
debt was doubled in economy.
2. Speculate on financial markets: credited money in terms of loan was used outside the
financial sector. A huge amount was used in speculation in financial market to push up
prices which was later become a big cause of that global situation.
3. Eventually the debts become unplayable: As the loans credited in larger amount, with
that debt rising very fast than income. So peoples stop repaying their loan amount and
banks going to danger of bankrupt.

4. Liquidity: Liquidity mismatches also a big cause. Lending period was so long and
borrowing was too short. There is no reason to speculate on buildings for a investment
bank with implicit banking of taxpayers.
5. Bank failure: Stock market crashes effect the economy very badly. More than half of the
banks were failed, peoples lost their money (Xu and et.al., 2011). As a results many
depositor withdraw their money very rapidly and banks goes to end. Failure of banks a
big factor of financial crisis or great depression.
6. Reduction in purchases: With their investments worthless, their savings reduced or used
up, and credit tight to not existing at all, spending by people who use a product or service
and companies alike ground to a stop. As a result, workers were laid off in a big group.
As people lost their jobs, they were unable to keep up with paying for items they had
bought through paying for something over times repossessions and kicking out of a
house or apartments were ordinary. More and more amount or quantity of items stored
now began to pile up. The percent of people who want to work but cannot find a job
rose above 25 percent, which meant even less spending to help help reduce the money-
based situation.
Discussion about if GFC could be repeated again.
Depression and financial crisis would not be reoccur if the rules and regulation work
strictly as these are in present situation. With strict regulation and flow of money that situation
can be avoided. But apart from that, there are various possible causes of reoccurring and won't
reoccurring of financial crisis or depression situation.
Some of the reasons that these won't occur again :
1. Stock price declines haven't went beyond 11 percent in one day or 30 percent in a year.
The kick-off to the Depression was the Stock Market Crash of 1929. By stock market's
close on Black Tuesday, the Dow had fallen 25 percent in just four days.
2. Housing prices and acts of forcing people out of a house because they didn't pay have
recovered (Kenourgios and Dimitriou, 2015). Rental rates are compared to other things
high, which has brought people or businesses who give money to help start businesses
back to the housing market. Now that confidence has been restored, housing prices will
continue to rise. The forcing people out of a house because they didn't pay pipeline,
which once seemed endless, has disappeared.

3. Business credit has been affected the most. The world's central banks have pumped in
much of the liquidity needed. In effect, they have replaced related to managing money
system itself.
4. Monetary policy is expansion-related, unlike the contractionary money-based policies
that caused the Great Depression (Moshirian, 2011). During the time period where people
and businesses made less money in the summer of 1929, the Fed decreased the money
supply by 30 percent. It raised the fed money rate to defend the value of the dollar.
Without liquidity, banks collapsed, forcing people to remove all money and stuff them
under the mattress, causing money-based collapse. The FDIC helps prevent bank runs by
insuring deposits. The Fed has said it will keep the fed money rate at almost zero. That
feeling of being completely sure calms markets and provides needed liquidity.
Some reasons behind reoccurring possibilities of financial crisis: The financial crisis
may reoccur if the proper maintenance is not provided in financial marker. Some of the reasons
behind reoccurring of that situation as follows:
1. Stock market crashes can cause depressions by wiping out person or business who
gives money to help start a business's life savings. If people have borrowed money to
invest, then they will be forced to sell all they have to pay back the loans. Derivatives
make any crash even worse through this taking advantage of. Crashes also make it hard
for companies to raise the needed money to grow. Finally, a stock market crash can
destroy the confidence needed/demanded to get the process of people making, selling,
and buying things going again. Stock market crashes can cause depressions by wiping
out person or business who gives money to help start a business's life savings. If people
have borrowed money to invest, then they will be forced to sell all they have to pay
back the loans. Derivatives make any crash even worse through this taking advantage
of.
2. Lower housing prices and resultant acts of forcing people out of a house because they
didn't pay totalled at least $1 trillion in losses to banks, hedge money, and other owners
of sub prime mortgages on the secondary market. Banks continue to collect and hold on
to cash even though housing prices have increased (Murphy, 2011). They are still
digesting the losses from one million acts of forcing people out of a house because they
didn't pay.

3. Business credit is needed for businesses so they can continue to run on a daily basis.
Without credit, small businesses can't grow, interfering with and stopping the 65
percent of all new jobs that they provide.
4. High oil prices could return once U.S. Shale producers are forced out of business.
Millions of jobs were lost when oil prices quickly dropped (Katada, 2013). At the same
time, many people who use a product or service bought new cars and SUVs when gas
prices were low. They will be pinched when prices rise again.
The scale and impact of GFC in economies of different countries.
The various countries are impacted by the global financial crisis. It affect growth and
investment in countries very badly. Impact of GFC in various countries as follows:
Australia: Australian manufacturing sector was impacted by the GFC. Its share in the
economy fallen down compared to the previous status. Its total merchandise trade also decreased
by the approx. 11%. its joint venture with china in mining , resources and in energy sector also
effected due to major financial crisis. The unemployment rate rise sharply and there was a period
of heightened uncertainty. But apart from that, Australian economy had strong performance
relatively to other countries. Some of the factors which reflect the impact as follows:
 Australian banks had very small exposures to the US housing market and US banks,
partly because domestic lending was very money-making
 Sub prime and other high-risk loans were only a small share of lending in Australia,
partly because of the historical focus on lending standards by the Australian banking
device that controls group of people that ensures rules are followed the Australian Wise
Regulation Authority (APRA) (Dominguez, 2012).
 Australia's process of people making, selling, and buying things was supported by large
useful thing/valuable supply exports to China, whose process of people making, selling,
and buying things rebounded quickly after the first GFC shock mainly due to expansion-
related money-related policy.
China: Shanghai stock exchange of the country effected widely by global financial crisis.
It lost 65% points at the end of crisis period. The trade and manufacturing sector also effected
badly by situation. he sub prime financial crisis in the United States unleashed a series of severe
effects from the stock market collapsing, financial institutions failing, and economies pushed in

recession. The crisis spread from real estate to other sectors of economy and across the globe
leads to the global financial crisis.
Gulf countries: GFC effects in way of indirect financial nature. Due to it finance costs
was rises and tight liquidity (Chaisty and Whitefield, 2012). The real problem for the GCC banks
lies in the indirect exposure to increased costs of funding amidst maturity mismatches and credit
exposure to local consumer, project and real estate financing. With inflation in double digit land
area owned or controlled by someone and interest rates in the lower single digits, hugely
negative real interest rates in the GCC countries do not make up equal to interesting reward or
reason for doing something to save. At the same time, a lot of money that were guessing on
revaluations of local GCC types of money have been withdrawn after the recent strengthening of
the dollar. So, GCC banks need to turn more and more to the capital markets to refinance
themselves. But here the cost of credit has risen hugely. Spreads for related to big business forces
that join things together to pay money back in the GCC have risen from around 145 a year ago to
over 500 basis points above LIBOR and the EIBOR, the Emirates inter banking rate, has about
doubled since June 2008.
Reforms: Reform refers to the various ways adopted for solving a specific situation.
Following reforms are adopted by the countries for rebuilding their financial positions:
 Banks hold more capital: Banks have rebuilt their money-based records of a
company after the worldwide major money-based problem and are now much safer.
 Ring-fencing: Banks have their investment arms separated from their retail arms.
This improves the toughness and resolvability of banks by protecting retail banking
services from risks in other places in related to managing money system (Pinnuck,
2012).
 Less exposure: The banks have restructured their balance sheets to reduce exposures
to riskier trading assets.
 Banking Reform Act: Implements a framework for ring-fencing the largest banks to
better protect consumers’ deposits, legislates for bail-in measures to ensure that
taxpayers’ money will not be used to save failed banks, introduces a senior persons
regime to hold key decision-makers to account, and makes severe misconduct a
criminal act .

CONCLUSION
At the end of the report it can be concluded that global financial crisis effect the countries
very widely. Various countries goes into the situation of great depression. Impact of GFC on
Australia also very wide but relatively to other countries its performance is better during the
crisis period. GFC mainly take place due to over accreditation of loans without proper
information. Later the countries adopt various reforms to overcome from these situation. But
there are many possible causes due to those the GFC can be reoccur. So the constant watch is
necessary for every country for fully overcoming from that problem.
.

REFERENCES
Books & journals
Sargent-Cox, K., Butterworth, P. and Anstey, K.J., 2011. The global financial crisis and
psychological health in a sample of Australian older adults: a longitudinal study. Social
science & medicine. 73(7). pp.1105-1112.
Bancel, F. and Mittoo, U.R., 2011. Financial flexibility and the impact of the global financial
crisis: Evidence from France. International Journal of Managerial Finance. 7(2).
pp.179-216.
Xu, Y., and et.al., 2011. Audit reports in Australia during the global financial crisis. Australian
Accounting Review. 21(1). pp.22-31.
Kenourgios, D. and Dimitriou, D., 2015. Contagion of the Global Financial Crisis and the real
economy: A regional analysis. Economic Modelling. 44. pp.283-293.
Moshirian, F., 2011. The global financial crisis and the evolution of markets, institutions and
regulation. Journal of Banking & Finance. 35(3). pp.502-511.
Murphy, L., 2011. The global financial crisis and the Australian and New Zealand housing
markets. Journal of Housing and the Built Environment. 26(3). p.335.
Katada, S.N., 2013. Seeking a place for East Asian regionalism: challenges and opportunities
under the global financial crisis. In The Global Economic Crisis and East Asian
Regionalism (pp. 7-24). Routledge.
Dominguez, K.M., 2012. Foreign reserve management during the global financial crisis. Journal
of International Money and Finance. 31(8). pp.2017-2037.
Chaisty, P. and Whitefield, S., 2012. The effects of the global financial crisis on Russian
political attitudes. Post-Soviet Affairs. 28(2). pp.187-208.
Pinnuck, M., 2012. A review of the role of financial reporting in the global financial
crisis. Australian accounting review. 22(1). pp.1-14.