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The 2008 Financial Crisis: causes and consequences - Essay Example

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The 2008 Financial Crisis: causes and consequences. Name Institution Date It’s evident that the 2008 global financial crisis came into a sharp focus especially considering the speed and severity it caused. As widely reported its effects were felt across all the industrialized countries alongside other developing and emerging economies…
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The 2008 Financial Crisis: causes and consequences
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Download file to see previous pages As such, the crisis revealed the dire need for improvement in the supervisory practices and proper internal communication. It also indicated the potential benefits of ensuring that strong risk management practices are implemented. There were also notable flaws that existed within the financial system during the peak of the boom. This involved the excessive reliance on the securitization, as well as the placement of investors and regulators faith in opinions of the private rating agencies. It is argued that, the price bubble in assets was majorly fuelled by a dense combination of too much leverage and underestimation of the increased systemic risks The already existing regulatory structures encouraged procyclicality within the lending behavior via the Basel capital requirements.2 Through this, the Basel I contributed to the increased securitization through the assignment of small capital charges to assets that were securitized. This in effect, propelled the banks to move assets toward the off balance sheet vehicles. Securitization wasn’t the only source of regulatory loopholes. ...
It had also been observed that the guarantees offered represented the government liabilities when the likelihood of bail outs increased. This further raised the systemic concerns and the looming severity of the country’s position economically. It has also been argued out that regulatory bodies exhibited flaws in the structuring of competition and poor incentives in risk taking within financial institutions.3 It should be noted that, weakness in the regulatory bodies were not only confined to the United States but rather the faults were within the financial services agency regulatory structure alongside poor banking laws were responsible for disarrays in the British financial sector. Moreover, it is pointed out that, division of power within the British financial organizations lead to the incapability of the financial sectors agency to implement the lender as the last resort activity. However, some analysts argue it out that, some benefits such as the acquisition of insurance and security dealings within the same regulators were ongoing even at the time when the activities were slowing down. During this period, deterioration within the financial institutions went quite far beyond the regulation of the financial systems. It was noted that as the boom prevailed, the shares of financial transactions that were not covered under the traditional regulation increased. Economists have argued that there was the corporate governance quality deteriorated within the boom years. Arguably, it was the period where gradual erosion in the ethics of business and moral standards was observed. It was also evident that the increased market valuation of firms led to ...Download file to see next pages Read More
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