Analysis belonging to the Recent Monetary Crisis in addition to the Banking Industry

The active money crisis began as section for the worldwide liquidity crunch that occurred among 2007 and 2008. It can be thought that the disaster experienced been precipitated from the wide-ranging panic produced thru economic asset promoting coupled with a immense deleveraging on the money establishments within the primary economies (Merrouche & Nier’, 2010). The collapse and exit on the Lehman brothers a multi-national bank in September 2008 coupled with significant losses reported by leading banking institutions in Europe plus the United States has been associated with the global economic disaster. This paper will seeks to analyze how the worldwide economic crisis came to be and its relation with the banking market place.

Causes within the finance Crisis

The occurrence in the worldwide financial disaster is said to have had multiple causes with the key contributors being the fiscal institutions and therefore the central regulating authorities. The booming credit markets and increased appetite of risk coupled with lower interest rates that had been experienced inside the years prior to the monetary disaster increased the attractiveness of obtaining higher leverage amongst investors. The low interest rates attracted most investors and personal establishments from Europe into the American mortgage market where excessive and irrational risk taking took hold.

The risky mortgages were passed on to personal engineers from the big fiscal institutions who in-turn pooled them together to back less risky securities in form of collateralized debt obligations (Warwick & Stoeckel, 2009). The assumption was which the property rates in America would rise in future. However, the nationwide slump around the American property market in late 2006 meant that most of these collateralized debt obligations were worthless in terms of sourcing short-term funding and as such most banks were in danger of going bankrupt. The net effect was that most for the banking establishments experienced to reduce their lending into the property markets. The decline in lending caused a decline of prices during the property market and as such most borrowers who had speculated on future rise in prices experienced to sell off their assets to repay the loans an aspect that resulted into a bubble burst. The banking institutions panicked when this happened which necessitated further reduction in their lending thus causing a downward spiral that resulted to the worldwide economic recession. The complacency by the central banks in terms of regulating the level of risk taking from the economic markets contributed significantly to the disaster. Research by Merrouche and Nier (2010) suggest which the low policy rates experienced globally prior to the disaster stimulated the build-up of economical imbalances which led to an economic recession. In addition to this, the failure from the central banks to caution against the declining interest rates by lowering the maximum loan to value ratios for the mortgages banking institution’s offered contributed to the financial crisis.


The far reaching effects that the fiscal crisis caused to the global economy especially while in the banking market place after the Lehman brothers bank filed for bankruptcy means that a comprehensive overhaul within the international fiscal markets in terms of its mortgage and securities orientation need to be instituted to avert any future finance crisis. In addition to this, the central bank regulators should enforce strict regulations and policies that control lending in the banking sector which would cushion against economic recessions caused by rising interest rates.

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