Causes of Financial Crisis - Essay Example

The paper addressed several issues related to the financial crisis and reached several conclusions, which will be underlined in the following paragraphs.

One major conclusion is that the financial crisis would not have happened if the regulators and other institutions responsible for supervising the financial system, would have taken the appropriate measures to keep the system sound and well functioning. Signs of their inability to fulfill this task were the easiness in getting bank credit, lack of regulation, too low-interest rates, and toxic mortgages.

Moreover, some of the major financial institutions considered “too big to fail” had many deficiencies in their corporate governance practices. These institutions have wrongly assessed the level of risk of their operations and exposed their business, as well as the other stakeholders to enormous losses. This behavior was encouraged by credit rating agencies, which due to some conflicts of interest, failed to correctly judge the level of risk of many of these institutions, and downgraded some of them when it was too late to make a difference.

Another cause that led to the collapse of the financial system was a combination of excessive borrowing, higher risk-taking, and a lack of transparency. Major U.S. banks failed in their assessment of risk by taking too much leverage, providing credit too easily, and not disclosing correctly all the information about their operations to the public.