Financial Integration and Liquidity Crisis - Book Report/Review Example

Financial integration and liquidity crisis Introduction The analysis of the financial integration aspect has been given the relation to the available banking system. Castiglionesi, Feriozzi and Lorenzoni (2009, p1) explain that through the integration system, banks are accorded the opportunity to smooth liquidity within the global scene. Their research had been included to suggest that the financial integration aspect has been applied by banks, to maintain the liquidation possessions at a minimal level shifting their view to profit making. The concept of International integration applies the ventures needed by the banks located within the international setting, to ease their liquidity through presenting minimal boundaries that limit the transactions witnessed in borrowing. The results present a table financial market because the loss experienced by the banks and financial regulations are limited to a manageable condition. These aspects prove vital in presenting measures that rejuvenate the bank’s ability to balance their financial crisis. In a sound system that allows for increased investment opportunities within the business industry, these measures are realized to contribute to the equitable balance in financial regulation. The financial integration aspect helps to reduce the sanctions and limitations that had reduced the functioning of the financial market. Moreover, the aspect applies measures to regulate the investment opportunity within the international banking. Banks are accorded the platform to borrow funds from both local banks and those located beyond their borders. Moreover, Castiglionesi, Feriozzi and Lorenzoni (2009) explain that the banks that are presented with access to a diverse liquidity reserve may have the option of choosing the best strategy to stabilize their returns. The analysis of their writings presents the situation in normal conditions where financial integration presents banks with the opportunity to lower their liquidity holdings presenting the avenue that are more profitable and not liquid prolonged investments. Banks with a more diverse investment option have multiple strategies to maintain their performance level to be accommodated within the international lifestyle. A crisis may be presented in countries that reduce the holdings of liquid assets within the company to create increased interbank rates. The proof is offered of the relationship of financial integration with reduced holdings of the liquefied assets within crises realized in the banking industry. With the importance accorded, the result from the integration is evident within the banks and so is their ability to complete investment. Within the aspect, the relationship is accorded on a dynamic scale, with the advantage offered to internationally established banks that present multiple options. With the option of borrowing from a flexible platform when hit by the liquidity shock, the established banks are offered the provision to be capable of holding liquefied storage. The paper analyzes a model that applies the mentioned aspects and predicts that with the needed provisions, the dominant force would hold that financial integration results to reduced holding of the liquefied possessions. The paper analyzes two separate regions that hold variable similarities and differences. The explanation is accorded to the regions that serve their customers in a similar provision. The banks in the region offer investment to the consumer’s savings and accord the funds back to them when hit with a crisis in liquidity shocks. The investment carried by these banks is witnessed on a two front basis, liquid short term property and those that are illiquid, but long term. These two varied regions are offered varied reactions when affected by average liquidity shocks and experience developments, in linking through the liquid assets within the international interbank platform. However, the other scenario witnessed realizes the effect of high liquidity shock within the two regions presenting an international liquidity reduction and the global interbank market bears minimal significance. The trend within the past fifteen years has noticed an elevation within the global integration within the banking system (Castiglionesi, Feriozzi and Lorenzoni 2009, p5). The activity has been massive and increasing within the banks in the U.S. from 1993 to 2007 to witness an elevation in the banking activities. The activities have increased on the international front as compared to the local activities. The analysis is accorded on these activities against the liquid holdings within the U.S. banks. With the readings declining from 13% to 3.5% during the similar period, the analysis suggests that within the U.S. banking system, the condition is stated from increased integration to elevation in the illiquidity state. In Europe, the presentation is a reduction in the liquidity ratio that has predicted the trend from 1999 to 2008. The position presents reduced borrowing and inclusion of increased funding from external sources to help the banks handle the existing predicament of surfacing their deficit. Countries hold variable reaction to the presented cases depending on the policy that they apply to complete their financial adaptations. With a flexible system that allows for the argued financial integration, the resulting consequence witnesses adjustment to the liquidation process that permits the banks to articulate measures to maintain their level within the financial market. The challenge presented has been in the desire to find adaptive solutions that reflect on the need to offer flexible solutions to their financial crises. In Germany, the financial integration level and the liquidity provision in the banking system had been stabilized by 1998. They only adopted the financial integration attribute and the decreased liquidity aspect at the beginning of the 1999 fiscal year. The paper further issues the analysis that is evident within the interbank markets with the liquidity premia function considered under control (Castiglionesi, Feriozzi and Lorenzoni 2009, p6). The behavioral trend has been highlighted to vary in the banks with developing economies predicted to possess magnified liquefied reserves. These banks are mentioned to present a varied criteria in containing and maintaining their profits within the competitive platform. These banks maintain the larger liquid reserves when they hold the increased fraction of the assets that they posses in the form of liquid stock. In developing nations, the aspect has been related to the nature applied in presenting their assets. The liquidity ratio is estimated to be 45% as compared to 19% of the developed countries. The difference is due to varied presentations apart from the international integration evident. Poor legal reforms and regulation measures have also led to the recorded difference. These regions hold different policies and resources needed to yield the production ration needed to create avenues to be used for development. Despite the varied aspects noticed in these regions, the importance is accorded to the role of financial integration and the influence on the liquidity differences. In the nations that possess the increased financial crises, there have been measures that are created to deliver the varied structure of their financial system. These countries have been noted to contain elevated variations in credit advancement as compared to stable societies that witness reduced crisis in their financial system. These countries with their large financial constraints are more flexible towards global capital flow and offer solutions to the distortion of the defined aggregates. The Autarky case listed suggest a case where the bank has been allowed to serve the consumers within the allocated boundaries without extending the services to other locations. With financial integration, there is the solution offered to limit such a scenario with the extension offered to offer development realized within the market. The concept has been useful to help generate the desired growth within the international markets to lead to the concept issued to stabilize the diverse economies. With the markets that face the financial crises, the banking solution offered has been linked to deriving alternative measures to allow freedom in monetary generation and to promote liquidity. In other crises witnessed, the norm presented has been the challenge offered in illiquidity state that cause imbalance within the financial market. The evidence has been issued that the interbank lending provision has been linked to the effects caused in predicting the downfall of the organization. According to the desired standards set within the business venture, the explanation is accorded to seize the norm of operational activities in lending finances within a similar institution. This has been noted to present the challenge to the moral obligation set within the trading sector that dictates the conditions necessary in achieving stability. These inefficiencies noticed due to the borrowing within similar banking institutions have been linked to monopoly. The aspect demeans the existence of equitable distribution of the available resources within the set facilities. However, the instability is linked to the summation of the available resources to the linked actions of the bank to complete investment ventures within the market. The sources predicted to lead to the inefficiency within these markets have been in the existence on the spot markets. The other cause of the financial instabilities realized within the markets has been linked to the availability of the growing demand for the establishment of the liquid stores. The realized demand has affected the financial system of the developed countries to change illiquid possessions to liquid holdings to force them to contain expanded holdings of risky possessions. The provision is accorded in the desire to complete the satisfaction within the market through finding the solution to offer free market economies. The trend has been established to create a definition in the financial market mix that ensures the reduction of the level in the liquid possessions within the banking system. The financial integration aspect occurs in the situation where the banks situated within a given region are capable of offering insurance against liquidity shocks, through the trading aspect in the credit terms with other banks. The integration of the two regions to enable the banks to acquire services outside the designated boundaries has been considered the measure needed to increase asset liquidation. A decentralized banking system results from the integration of the given regions, and this is paramount to lead to expenditure regulations. In the decentralized banking system, the available system holds several properties. Each listed region in the system offers services to their own customers using the presented terms. If the bank listed in a given region experiences problems that affect their own consumers to be reflected in the functioning of the bank’s policies, the opportunity is accorded to share responsibility in the constraints. In times of crisis, a bank is required to pay the customers a consolation settlement that ensures their assets are maintained. However, the crisis may be projected to the failure of the bank to maintain the financial capacity to the market. The financial integration provision ensures the available assets liquefied to be utilized are exchanged to offer the needed provision to help the bank to solve the crisis. A stable banking system would seek the needed strategy to cover these expenses through borrowing from a separate region but a different bank. To borrow from a variable credit line accorded within the markets, the bank that needs to solve their credit problems presents the challenge to offering a flexible platform with liquefied assets. Integration may also be included to predict the ability of the banks to accord their excess liquidity within the interbank platform when experiencing increased liquidity shock. The other provision includes integration to be placed to be explained as the ability of the bank to lend their paramount liquidity to the interbank structure when experiencing a period of reduction in their liquidity stock. The financial integration aspect bears varied solutions and results for banks, both on the local and international platform. The integration aspect directly affects the liquidity process within the company and accords the choice to present alternatives to solve the financial crisis witnessed in the firms. Moreover, internationally integrated sectors have the option to acquire wealth when affected by a leading liquidity shock. With the provision, the banks are offered the opportunity to reduce their reserves within the liquid assets. The solution is taken to preset a flow in the liquefied assets that are not in use by the owner to be extended to the bank that holds minimal assets. The channels are carefully selected to issue the legal framework required to boost the existing international relationships and predict a sustainable financial system. The leading advantage of the financial integration provision has been extended in the realized growth of the markets and the economy. With the old system, banks had been forced to deal with problems within their scope. This had led to the difficulty faced in the fiscal economy with the slow growth of progress during financial crises. However, with the financial integration aspect, companies have been able to seek solutions at an international level. The provision allows for the free interaction of policies within the selected organizations to increase the market structures. The provision allows for the free interaction measures within banks to increase their composition and serve their clients with minimal problem. The provision is advantageous because the opportunities are increased in offering investment opportunities and share risks experienced. With the expertise available in an international platform and technological expertise available, there is a reflection on measures to be applied to offer sustainability. Changing the policies from a confined platform to a wider scale offers the opportunity to share intellectual provision. The banks are capable of offering useful ventures to their liquefied assets to convert them to productive assets to increase their services. The increased rate of global financial integration has been boosted by the desire to create channels to limit the crisis witnessed in a constrained market economy. The increased globalization trend has been included to develop the realized ideology in creating the aspect. Some societies have achieved the concept through the introduction of a single monetary currency to suggest the established bond. The extension has been accorded to include the effects offered on the assets within the banking system. A bank relies on the available liquid and illiquid assets held to predict the performance within an indicated market segment. Financial integration holds an impact on the optimal liquid possessions within the banks and leads to the reaction and adjustment towards strenuous conditions that limit performance towards their customers. The aspect has been applied to contribute to the witnessed provision that enables banks to find solutions to problems that might develop from the constraint of poor management of the available assets. Instead of utilizing own illiquid assets to cover for the witnessed burden, the solution is placed on foreign investment to help predict the solution needed to cover the financial problem noticed. Therefore, financial integration has been regarded as an adequate venture to maintain sanity within the operation of the banking system. Conclusion The article supports the integration aspect on an international scale with the importance placed on the effects presented to the operational expenditure within the banking system. Through monopolistic ideology, banks have borrowed from their own assets to cover for the witnessed problems. However, with globalization and the realization to present permanent solutions, nations have adopted financial integration to secure lasting solutions to cover fiscal problems. List of References Castiglionesi, F., Feriozzi, F. and Lorenzoni, G. September 2009. Financial Integration and Liquidity Crises. Accessed 25 May 2012, Read More