Economics of Monetary Union - Essay Example

Banking Name Course Institution Date   Banking Part 1 The crisis of the European debt is an ongoing disaster that has made it hard for many countries using the euro to pay off their government debt without the help of other government institutions. This debt crisis came about due to some complex factors, such as the globalization of finance, imbalances in global trade, economic policies associated with expenditures in the government and the techniques used by states to save affected banking industries and private sectors. The woes of the EU began during the financial crisis in 2008 (Micallef, 2016). The economy of Portugal was caught up in the events while trying to adjust by correcting fiscal imbalances within a time of low growth because of cyclical regulations. They were also susceptible to changes in the market conditions. The other obvious problem with the country was the lack of a central bank that was independent and so the battle to regain economic stability as one of the sole stabilizing tools would be the fiscal policy The default of the Lehman Brothers on September 15, 2008, in the financial markets turned into a major financial crisis. The bankruptcy of the Lehman’s was the biggest ever, as its properties exceeded the likes of former bankrupt institutions such as Enron and WorldCom. Flow of credits to the economy reduced considerably. Problems in the financial system rapidly spilled over to the economy. This has caused a severe global economic meltdown for years. Similarly, the euro area has not been spared (Brunnermeier, 2009). There has been a decline in economic activity, and inflation is at its lowest level since the introduction of the euro. Lehman was the fourth largest investment bank in the United States at the time of its collapse. The most significant change in business between the United States and European states is that European firms are very dependent on lending from banks. Approximately eighty percent of commercial duty in Europe is in the form of bank loans, comprising of about only twenty percent being provided by bond markets. Research has it that there is a deficit in the capacity of more than $1 trillion annually between what European organizations raise in the capital markets and what they could increase if financial markets were as advanced as in the United States. Why is there a much dependence on bank loaning in Europe? First, numerous individuals and firms in Europe possess a culture of taking risks and venturing into entrepreneurship. This is moreover evident when it comes to saving habits. Whereas many Europeans have a tendency of saving than people in the United States, a smaller amount of these savings end up in investment. Secondly, the structure of the European banking system has in history made bank lending the choice for most companies. The main alteration with loaning from banks is that in the United States, financial institutions sell on many of their finances into the more industrialized established market, while in Europe a larger share of lending stays on the balance sheets. Additionally, other funding sources for example as investment markets have remained split across borders and have in the past years started to get close to the United States. This is evidently revealed in the gap in most areas of the financial markets (DeGruwe, 2005). For higher growth and minor companies, the difference between the United States and the European bond and loan markets is mainly serious. The issue of high bonds in Western enterprises has been increasing promptly over the past couple of years. Unreasonably, the lowest corporations in Europe that are dependent on the bank funding have the most unrealistic expectations. European Central Bank and its equivalents establish that numerous minor establishments that require bankrolling may not be ready to borrow substantial amounts of cash from their financial institution and expect them to offer risk capital that should be given by industrialists, shareholders or venture capital companies (Scheinkman, 1994). As a result of reforms in the banking industry and their effect on returns, many directors expect that many businesses would continue to move away from London and Europe to where the costs are lowest. Bank administrators acknowledge that, for the future, their organizations face substantial regulatory, political and economic headwinds. European and United States economies offer daily reminders of their delicate conditions while regulators continue to make tighter the banks screws. While banks may not be in a position to tackle compensation at the moment, they can still profit from making material changes to operations and the customer experience. Discipline is of paramount importance in managing assets and capital. Even with controllers suggesting that greater changes are essential; directors must still adhere to these steps. The banking industry is being overtaken by a growing number of FinTech startups and digital firms who are working to capture the market share and traditional members. To survive, traditional banking organizations need to advance rapidly. This is according to new research from Adaptive Lab, a digital innovation agency. Based on this study, despite the fact that banks are spending billions of money in dollars on digital change and innovation, changing the rooted culture within these organizations is quite difficult (Micallef, 2016). Ever since the credit crisis in the year 2008, many financial institutions have been experiencing a difficulty in adapting to a new environment (Clements, 2016). Reduced interest rates combined with low profits in the economy mean that banks make small profits from the payments they accumulate, the lending and the services offered. While government projects such as funding for lending have sustained up some of the banks’ processes, they have reduced activity in other areas, for instance by moderating market volatility with massive programs. Insiders also admit that the sector is still going through a rough patch. Part 2 Deutsche Bank recorded its first annual loss in January 2008 because of too many difficulties as well as a €5.2bn endowment for penalties and lawsuits. This caused a decrease in its shares and pushing its new bonds to fall (DeGruwe, 2005). The crash was mainly alarming for the reason that they are designed to wipe out investors in a crisis, consequently avoiding a state to bail out.Deutsche Bank is not close to translating its bonds yet. However, the organization is the center of attraction because of a $14bn penalty which was suggested by the United States Justice Sector for debt funded securities. Shares in the bank have decreased in value so far. John Cryan who was the chief executive has established a five-year reconstruction plan that will cut approximately fifteen thousand healthy workforces. The bank has insisted that the fine from the United States can be paid without considering a state rescue. The bank can follow the example of several banks in the United States and negotiate the decrease of the penalty to a more significant figure. There is no sign at the moment that the German government will bail out the Deutsche Bank (Clements, 2016). The ministry of finance has established that it is not arranging for any emergency plan if Deutsche cannot manage the United States penalty. The bank still has many gears at its disposal. However, they only prosper if investors have enough confidence in the future of the organization to provide support. Since the bankruptcy in September 2008, experts globally have made an effort to generate different groups that allow financial institutions to be unsuccessful while leaving the rest of the financial system fairly untouched. For that reason, Deutsche has bonds that it can write off when in distress, as well as why any German state would be established in the new firm regulations. In the present business setting, companies cannot settle for improvement in increments. They are occasionally obligated to go through transformations in performance to grow upwards and stay at the top. What exactly should the chief executive be doing to try and overcome the present difficulties in the bank? If I were the CEO of Deutsche Bank, I would try to overcome the challenges of the company by dong the following: Creating a robust and dedicated group: The group should be a treasured asset in championing any transformation. One needs outstanding distinct performers and also personnel who are devoted to working as a team. Displaying the real character will increase the chances of getting the group on board. Nonetheless, it is also important to capitalize in building that team. Successful business leaders create the time to evaluate the capabilities of specific members of the group and act rapidly on the outcome. In some instances, the contribution from other corporations for example independent search companies is required to develop a more neutral fact base. Persistently pursuing impact: Enthusiasm, motivation, and commitment is an essential element for a fruitful transformation. There’s no alternative for a boss channeling his drive toward guaranteeing that the hard work of the company has an effect. There could be many valuable outcomes, among them, assuring that critical judgments are made swiftly, without losing the worth of joint discussion and planting the fruits of a culture based on honesty as well as determination. Successful bosses certainly do not lose view of their administrative duty to head forums based on the evaluation. Consequently, I would equate the outcomes of the change program with the new strategy, find the primary sources of any nonconformity, be happy of the achievements, assist in solving complications and hold the heads answerable for maintaining the change on track. The CEO also has the responsibility of ensuring a proper balance between individuals that become successful today and those that show the ability to deliver results in the future. Such an example is demonstrated by John Varley, the chief executive officer of Barclays. Creating a meaningful transformation: Makeovers require an extra input. Workers are obligated to primarily reconsider and redesign the industry while persistently running it on a daily basis. Where do this drive and vigor come from? A great makeover helps staffs have confidence in the effort by responding to their requests, which ranges from the way in which the change will influence the organization and how it will affect them. The final effect will depend on not only having final solutions to these problems but also the boss’s enthusiasm and capability to make things precise, involving others openly, and to spot achievements when they arise. Typically, an individual change drive means a complete response on management unique to the objectives of the platform, daily examination to disclose the manner in which time is spent on changes, a pledge to some specific transformation aims, as well as specialized training toward these ends (DeGruwe, 2005). Bosses normally claim that the course is very powerful when all the members of the team pursue their transformation journeys and strengthen their specific aims to develop an atmosphere of task and support. An actual dialogue requires a program that is well structured, which characteristically guarantees that sufficient time is consumed in personal reflection to ensure that each produces a particular point of view. In this course, little tolerance should be shown for details and any lack of engagement. For business leaders who are the head of a transformation, a single model does not guarantee success. Nevertheless, they can increase the chances by aiming at management and leadership gatherings: For instance, making a meaningful change, displaying a preferred behavior, creating a robust as well as a devoted team. Also, persistently the following impact. Collectively, they can powerfully create the drive required to accomplish a positive performance transformation.   References Brunnermeier, M. K. (2009). Deciphering the Liquidity and Credit Crunch 2007 – 2008, Journal of Economic Perspectives, Vol 23, Nr. 1, 2009, pp. 77 – 100. DeGruwe, P. (2005). Economics of Monetary Union”, Oxford University Press. Press Micallef, J. (2016). Europe’s Next Financial Crisis. Huffington Post. 6th Jun 2016. Web. Retrieved Online 14th Oct 2016. Clements, L. (2016). Deutsche Disaster Plan? Merkel 'preparing' emergency bailout for leading German bank. Express Newspapers. http://www.express.co.uk/finance/city/715424/Deutsche-Bank-emergency-plan-bailout-Angela-Merkel-Berlin Scheinkman, José A., and Michael Woodford. “Self-Organized Criticality and Economic Fluctuations.” American Economic Review 84, no. 2 (May 1994), pp. 417–21 Read More