FINANCIAL CRISIS

The Recent Global Banking and Financial Crisis

The Recent Global Banking and Financial Crisis

Introduction

The financial crisis has directed some to propose that the decades-long method of financial integration could and probably should reverse. However, we are inclined to underestimate the tremendous advantages of financial integration, advantages which can be diffuse and hard to recognise, but which are substantial nonetheless. What is required is a new framework for global financial stability, one that locations the challenges of system-wide risks head-on. (Cintra 2008 33)

Such a framework desires to be global in the sense of being both worldwide and comprehensive, with contributions from monetary, fiscal, and macro- and micro prudential policies. Regulatory restructure is under way, but this is just one of several building blocks. We furthermore require ample devices for systemic risk monitoring, and this entails that we require better and timelier data. Uncertainty about the scale of deficiency on banks' assets was the proximate origin of the crisis, but it was the dislocations in banks' funding markets that turned the subprime crisis into a global financial crisis. Regardless of the procedures utilised to organise systemic risks, a first step should therefore be to supervise these funding pressures.

 

Discussion

Financial integration brings significant benefits. It carries economic growth and complements full monetary integration, which is very applicable from the euro zone perspective. However, during the critical stages of this financial crisis, we glimpsed a pointed down turn in international banking undertaking and seen tensions between global banking and national frameworks. Globally, cross-border lending has bound by more than $5 trillion since early 2008. That is a down turn of approximately 15% from the top of $36 trillion. (Borio 2008 251)

It is significant to accept that financial integration has risks. The crisis has recalled us that expanded integration furthermore entails expanded complexity. Transactions are more convoluted, counterparty relationships are more convoluted, and market dynamics are more complex. And, unsurprisingly, when something becomes more convoluted, the inherent systemic risks become tougher to manage. But the answer to the expanded risk of a globalised financial scheme should not withdraw to national finance. Instead, it should be a proceeding to better administration of systemic risks. And this, in turn, needs that we put in location a global framework for financial stability.

Today, financial stability is a global anxiety, even though the instability battles policymakers nationally. They require to proceed punctually during a crisis tends to boost national, and often unilateral, solutions. To be certain, there will habitually be a national constituent to any global solution, but answers that assist to economic welfare amply - both nationally and internationally - and to a grade playing area should be part of a global framework, founded on timely international cooperation. Only with a global framework will it be likely to both preserve the advantages of financial integration and organise the affiliated risks in a reliable way. (James 2008 12)

 

Global Effects

A number of commentators have proposed that if the liquidity crisis extends, there could be an expanded recession or ...