FINANCIAL CRISIS

Global Financial Crisis & Eurozone Sovereign Debt Crisis

Global Financial Crisis

United States subprime crisis was an obvious shock brought by financial crisis influenced various aspects of real world. The sluggish stock market and increase unemployment rate can be the best illustration of this severe effect.

It appeared due to huff a bubble in the mortgage market caused by the Fed's low interest rates, abundant liquidity and the frivolous attitude of mortgage companies to the borrowers. A chain reaction around the world caused by the fact that mortgage companies trying to get out of difficult situations with low-quality mortgages, mortgages were sold under the mortgage (mortgage) to institutional investors in the U.S. and other countries.

When real estate prices in the U.S. fell, the company bought these mortgages, incurring huge losses as the price of real estate was much lower than the price of mortgages (Re 2011, 532-538). The U.S. housing bubble was blown away - hit the global economy. In fact, the U.S. mortgage companies gained unfair, poor speculative clients, and when the debt no longer give away, resell mortgages to other companies around the world who have suffered huge losses on themselves.

Eurozone Sovereign Debt Crisis

The debt crisis in the Eurozone refers to a sequence of financial events that have affected the economies of 17 member states of the European Union since the beginning of 2010. These currencies have a common currency i.e. Euro. Since late 2009, fears of a sovereign debt crisis began to grow among investors as a result of increased levels of private and public debt worldwide while there was a wave of downgrades in the credit ratings of government debt between different European states (Clemmitt 2007, 257-281). The causes of the crisis were different depending on the country. In many countries, private debt arose as a result of a bubble in the price of real estate assets that was transferred to sovereign debt. The main causes of the Eurozone debt crises were;

Increased levels of household debt and government

Imbalances in international trade

Structural problem in the Eurozone system

Inflexibility of monetary policy

Loss of confidence

The crisis of European sovereign debt arises from a combination of complex factors. These include the globalization of finance, the easy access to credit conditions between 2002 and 2008 that encouraged practices of subprime loan, the economic crisis of 2008-2012 , the imbalances in international trade, the existence of different bubbles the real estate sector during the crisis were punctured, the global recession of 2008-2012 , the fiscal policy chosen in relation to income and government spending (Mangir 2011, 122-136). It also includes the approach taken by the management for the bailout of banks and private holders of obligations by public managers by socializing private debts and losses.

Challenges Encountered by Banking Sector

The effects of financial crisis have a significant impact on the financial industries of the world. While the crisis initiated in the U.S, it severely combined with other countries of the world particularly U.K, where the effects were long-lasting. These crises posed great challenges to the banking sector especially the ...