The impact of the Financial Crisis on Banking Industry - Research Paper Example

In 2009, the “Federal Deposit Insurance Corporation” failed almost 305 banks. Even though this is comparatively small proportion of the entire banks, the tendency that this reveals is the actual reason for concern. This amount is greater than 12 times the amount, 25, which failed in the year 2008. Among these banks which were forced to shut their doors in 2008 was “Washington Mutual”; the leading bank to date which has been compelled to shut their doors. Nevertheless, they were capable to get away total amount of liquidation by being engrossed by “JP Morgan Chase”.

This benefited the “JP Morgan Chase” since this gave them a trail on the west-shore which they had been requesting for some time (Bexley et al., 2011, p. 2). Due to these negative externalities, the problem of credit crunch has been generated which has reduced the amounts of investment and investable funds across the globe. Also the problem of subprime lending has also been aggravated in global economies, mainly in US which has reduced the banking transactions in the country (Bexley et al., 2011, p. 6). . to this high level of inflation, consumers are not getting capable of purchasing costliest goods and services and hence business organisations which are engaged in production of these goods and services are leaving the industry.

Again this is reducing the level of income in the country and hence the level of demand for necessary goods and service. The Fed is expecting to have a subdued in the next few years because of weaker level of real economic activities prevailing in the country. But the Fed is expecting that the rate of inflation will remain unresponsive in newt few years due to the fact the American economy is still under the curse of financial and economic crises situations (Minutes of the Federal Open Market Committee, 2011, p. 1). Future solutions: Again, it is expected by the researchers that the rate of interest will remain comparatively low as well as stable in the next year following the rapid growth of developing countries.

This increasing growth of countries such as India and China will increase the volume of trade in favor of USA. Also the corporate bonds and the share market are expected to be much stable in the next year than it is now. These aspects are expected to improve the performance of the banking sector in the US (Elwell, 2011, p. 4). The rate of interest on “91-Day Treasury Bills” in the next year is expected to be 0.2% and that of “10-year treasury notes to be 3.5% (Fiscal Year 2013: Analytical Perspective: Budget of the U.S. Government, 19).

These improvements in the economic variables of the country is expected to create significant amount of positive effect on the increment of the level of private as well as public consumption spending of the country. Consumption spending is most likely to remain the most crucial part of the