Banking Sector Analysis in Inside Job - Essay Example

Banks play a major role in running the economy, especially when lending large sums of money and financing huge projects are needed. Over the years, banks have been generating most of their revenue from interests earned from loans, mortgages, and collaborations with primary stakeholders in trade. These can thrive if there is mutual understanding and consultations among the concerned partners as there are terms and conditions involved as the rules of engagement (Charles and Matt).

However, the above characters can only survive if there are enough sensible fiscal regulations. Poor financial policies can adversely affect the confidence and profitability of the banking sector as they may create loopholes within which unscrupulous business conducts may be perpetuated. Subprime mortgages and low-interest rates can be a major recipe for economic disaster as when risky creditors are involved with enormous amounts of money, the banks have to provide for bad debts, just in case the creditors do not pay. Another tragic incidence as is the case with the banks in the film the Insider is the issue of mortgages at a very low-interest rate. This negates the bank's capacity to finance trade and consequently generate more revenue for the government. Not only does this reduce the investment capacity of various stakeholders within the banking sector, but it also has a bearing on the strength of the principal currency like the Dollar.

Failure to check on these critical issues and make necessary corrections often bring forth repercussions that can be categorized into three main groups; first-round effects, second-round effects, and third-round effects as well documented in the film The Inside Job. The first round effects in a banking sector crisis may include the paralysis of the subsequent financial markets channels. This means that most of the market structures that anchor their fundamental business transactions in the banking sector either through subcontracting or direct transactions suffer huge blows. The second round effects may range from low government revenues and expenditure, to and near collapse of the real estate sector as witnessed in the United States from 2008 to 2010. While the first-round and second-round effects may not be directly related to the bank, the third-round effects manifest in the weakening of financial statements like the balance sheet of the bank as was the case with the Bank of America (Charles and Matt).

It is, though, encouraging that however much the banking sector loses money through economic recession, proper policies and strategic management skills can reverse the direction so that they take a new step towards financial success and prosperity. Nonetheless, this can only be achieved by ensuring commitment by all the partners and increasing the amount of capital remitted to the commercial banks by the central government to increase the financial and capital base of the banks. With that in mind, the nation’s Gross Domestic Product will appreciably increase, whilst the unemployment and inflation rates will go down to a manageable level.