Presentation and written submission - Essay Example

The global crisis was developed mainly due to the bursting of the US housing bubble, which stemmed from adverse selection of mortgages and resulted US mortgage crisis. Evidently, the global financial crisis slowed down economic activities and this situation in turn impeded the economic growth of nations around the globe. More precisely, the 2008 financial crisis has led to a dramatic increase in uncertainty in financial markets. Specifically, the resulting inability of lenders to solve the adverse selection problem makes them less willing to lend, which leads to a decline in lending, investment and aggregate economic activity.

This paper will evaluate the financial market uncertainty identified by giving some real life examples. Financial market uncertainty Thoughtless provision of mortgage loans and increased speculation in the housing market significantly contributed to a series of bank collapses in the United States. The failure of credit rating agencies in properly identifying the risk elements associated with complex securities and subsequent housing bubble also contributed to the global financial crisis. Most of the studies conducted to identify the real causes of the 2008 financial crisis reported that adverse selection in mortgages led to housing bubble and bank failures.

Therefore, today banks and other financial institutions across the globe are extremely bothered about the possibility of defaults in loan repayments; and hence they are hardly willing to lend even to potential clients. Naturally, this situation leads to a decline in lending and investment. The decelerated financial transactions adversely affect circulation of money which in turn reduce economic growth rate. Decline in lending In response to this uncertain economic condition, UK banks significantly reduced lending over the last few years.

As Tortman (2011) reported in the Telegraph dated Feb 28, in 2011, UK’s four leading banks limited their commercial real estate property lending by a combined total of ?17.2 billion. Royal Bank of Scotland and Lloyds Banking Group, Europe’s two largest commercial property lenders, trimmed their loans by a combined ?14.5 billion (ibid). As per the same report, HSBC and Barclays cut lending by a combined ?2.7 billion. These figures indicate that how UK lenders deal with property lending after the global credit crisis.

According to Phil Clark, co-author of the Property Industry Alliance’s report, UK banks have been very vigilant in mitigating their loan exposure to real estate (as cited in Trotman, 2011). He added that annual real estate lending in UK would drop to ?100bn over the next few years (ibid). As Milliken (2013) reported in Reuters dated March 4, in order to boost bank lending and thereby to promote economic growth of the UK, the Bank of England and the finance ministry launched the flagship plan (Funding for Lending Scheme) June 2012.

This plan was intended to offer cheap funds to banks if they boosted lending to medium sized businesses and home buyers. However, some recent reports indicate that although banks and other lending institutions have utilised almost ?14bn of the central bank funds offered, net lending indicates a reverse trend (ibid). The report says that Vince Cable, the UK Secretary of State for Business, admitted that the result was ‘very disappointing’. Financial releases indicate that borrowers repaid nearly