US Financial Crisis: Effects on Global Banking


Code : ECC0007

Year :

Industry : Banking, Insurance and Financial Services

Region : Global

Teaching Note:Available

Structured Assignment : Available

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The Rise of Global Banking and its Exposure to US Financial Market The world's financial system started gaining momentum with the rise of US as economic superpower after the WorldWar II. Free market economists, led by Friedman, propagated that "markets would be better in allocating capital than bureaucrats".1 The US advocated universal multilateralism aimed at reducing trade barriers and promoting economic interdependence. The world bought this philosophy and globalisation gained prominence, especially from 1970s with majority of governments opening up their economies...

The US Debt Market Since 1975, the US constantly maintained a global share of above 20% in the world income.4 The country has remained an economic giant in the world financial market through its capitalist policies. The country's constant growth boosted confidence in the global financial market. Amongst the various sources of investments worldwide, Treasure bonds (T-bonds) of US were considered to be the safest, as they were guaranteed by the US government, backed by a colossal and ever growing economy...

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Subprime Balloons to US Financial Crisis With the interest rates slashed to the lowest levels possible by 2002, credit was easily available and the American dream of owning a home turned true with commercial banks (which form the prime market) funding these dreams liberally. The subprime market (comprising of the financial institutions that are not regulated by Fed's norms) came to the rescue of those who lack creditworthiness to get loans from prime markets and granted loans to them at higher...

The Crisis goes Global – Nemesis of 'Global Financial Order' Fractional Reserve banking13 by the top world economies is one of the core aspects of the crisis. The global banks of the western nations work on the premise that they can lend 10 times their value in assets without the risk of borrowers defaulting on loans or the savings in these banks taken out by depositors at once. The banks were confident that central banks, in the case of any crisis, will come to their rescue – which they got in the face of the current crisis. The global investors and banks were taken aback with the dramatic crisis unfolding in the US. For a long time before the crisis, the complexity in the US financial system has masked the extended risks involved in CDOs...

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