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Financial service-Banking - Essay Example

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The government is responsible for issuing out fiscal and monetary policies, which help stabilize a country’s economy. Over the last three years, the world has been recovering from a global…
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Financial service-Banking
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Download file to see previous pages The U.S and European market had enjoyed a lot of freedom thanks to deregulation and privatization in the financial industry. However, this trend was to be detrimental a decade later. According to Anne Khademian the government’s efforts to manage the financial crisis has been monumental (841). She continues to add that the congress made major reforms in the financial industry. First there was the Dodd-Frank Wall Street Reform and the Consumer Protection Act. These acts were aimed at regulating the unregulated financial industry, which had crippled the economy. This was an attempt by the government to reverse the actions of subprime lenders and investors, financial market intermediaries and credit rating agencies. Due to the unregulated nature of the financial and banking industry financial institutions were offering high interest rate mortgages. In sub-prime lending, banks were lending out higher interest rates to their customers without considering the risk of default rates of their customers. The banks were also fast to approve the loans because of the high interest rates charged on the loans. During the financial crisis, at least four million people faced foreclosure due to their inability to pay loans. Consequently the banks were late in receiving their payments and meeting their credit obligations. The government had to step in and bail out the banks in an attempt to end the financial crisis. The U.S treasury and E.U commission pumped in billions of dollars and Euros to the banks in order to save them from liquidity.
The government plays an important role when it comes to stabilizing the economy. This is achieved by either lowering or increasing the lending bank rates. In the journal article, the author says, “the response to the crisis caused by too much debt and interest rates manipulated interest rates too low” (Khademian, 842). During the financial crisis, the government lowered the interests lending rates to ...Download file to see next pagesRead More
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