financial crisis

Examples of financial crisis in the following topics:

• The Federal Reserve and the Financial Crisis of 2008

  • The Fed responded to the financial crisis with conventional open market operations and unconventional credit facilities and bailouts.
  • In late 2007, the bursting of the U.S. housing bubble triggered the worst financial crisis since the Great Depression of the 1930s.
  • Further, this type of financial crisis meant that banks' assets were suddenly worth far less; open market operations can ensure that these banks have the liquidity they need to carry out their financial activities.
  • Others praise the Fed for avoiding an even deeper financial crisis.
  • Summarize the monetary policy tools used by the Federal Reserve in response to the financial crisis of 2008.

• Bernanke Era

  • The Bernanke Era has included challenges faced by the Federal Reserve such as the financial crisis, strengthening federal policy, and reducing the deficit.
  • During his tenure as chairman, Bernanke has been responsible for overseeing the Federal Reserve's response to the financial crisis .
  • The main controversies surrounding Bernanke's terms as chairman include how he handled the financial crisis, particularly failing to see the crisis, for bailing out Wall Street, and for injecting $600 billion into the banking system to give the slow economic recovery a boost.
  • They stated that act of averting worse problems outweighed any responsibility that he had for the financial crisis.
  • Throughout his time as chairman, Bernanke has influenced the financial crisis, the Wall Street bailout, and the economic stimulus.

• Consequences of Banking Crises

  • Banking crises have a dramatic negative effect on the overall economy, often resulting in an eventual financial and economic crisis in a given economic system.
  • (and to some extent, European) banking disasters in 2008 and 2009 led to a complete global financial meltdown, destroying economies not involved in the irresponsible investing practices executed by banks in these specific regions. identifies the critical importance of economic well-being in trading partners, as the U.S. banking and financial crises spread rapidly (within the course of just one year) across a substantial portion of the globe (though there are certainly other factors that contributed to the financial crisis and its consequences).
  • The slow and negative growth demonstrates all of the economic losses that resulted in part from the U.S. financial crisis, highlighting the dependency of global economies.

• The Money Multiplier in Reality

  • In the decades prior to the financial crisis of 2007-2008, this was very rare - banks held next to no excess reserves, lending out the maximum amount possible.
  • After the crisis, however, banks increased their excess reserves dramatically, climbing above $900 billion in January of 2009 and reaching $2.3 trillion in October of 2013 .
  • After the financial crisis the monetary base increased dramatically: the result of banks starting to hold excess reserves as well as the central bank increasing the supply of reserves.

• The Global Economy

  • As international financial markets grew more robust and interconnected, some countries ran into severe problems paying their foreign debts, not because of general economic mismanagement but because of abrupt changes in flows of private investment dollars.
  • This became especially apparent with the financial crisis that gripped Asia beginning in 1997.
  • In the wake of the Asian crisis, leaders from the United States and other nations increased capital available to the IMF to handle such international financial problems.
  • Recognizing that uncertainty and lack of information were contributing to volatility in international financial markets, the IMF also began publicizing its actions; previously, the fund's operations were largely cloaked in secrecy.
  • And in many instances, it pressed countries to liberalize their trade policies -- in particular, to allow greater access by foreign banks and other financial institutions.

• Causes and Immediate Impacts of the Crisis

  • The recent financial crisis, commonly referred to as the sub-prime mortgage crisis of 2007-2008, was borne of the failure of a series of derivative-based consolidation of mortgage-backed securities that encapsulated extremely high risk loans to homeowners into a falsely 'safe' investment.
  • In order to prevent the entire financial system from collapsing, some of the banks (and other financial institutions) were bailed out.
  • The U.S. stock market lost confidence in financial institutions and some of the companies connected to them and subsequently crashed.
  • Within a few months, there were job cuts, bankruptcies, and reduced spending, as the crisis spread throughout the economy (both domestically and globally).

• The Structure and Function of Other Banks

  • The primary function of a central bank is to manage the nation's money supply (monetary policy), through active duties such as managing interest rates, setting the reserve requirement, and acting as a lender of last resort to the banking sector during times of bank insolvency or financial crisis.
  • The recently-established Financial Policy Committee is responsible for regulating the UK's financial sector in order to maintain financial stability.
  • The People's Bank of China has the most financial assets of any single public finance institution.
  • It is responsible for making and implementing monetary policy for safeguarding the overall financial stability and provision of financial services.
  • It is divided into 18 functional departments that oversee such issues as monetary policy, financial stability, anti-money laundering, and legal affairs.

• Causes of Banking Crises

  • Banking crises are not a new economic phenomenon, and similarly are not the only source of financial crises.
  • Within a few weeks this resulted in a systemic banking crisis (see ).
  • This chart is an interesting take on the relatively consistent frequency in which financial crises occur across the globe.
  • It is interesting to note both the efficacy of Bretton Woods alongside the increasing risk of financial collapse in modern times.
  • Describe some common causes of a banking crisis, Explain a bank run

• Greenspan Era

  • He stated the the Fed was ready "to serve as a source of liquidity to support the economic and financial system. " Throughout his early years as chairman, Greenspan impacted all the presidencies in various ways.
  • In 2007, only months after Greenspan retired, the subprime mortgage crisis occurred in the United States.
  • It is suggested that Greenspan's easy-money policies were the leading cause of the mortgage crisis.
  • Greenspan did not accept responsibility for creating the housing bubble that led to the mortgage crisis.
  • He simply stated that he did not believe in deregulation as strongly following the crisis.

• Global Impacts

  • To provide additional context to the global adverse effects of the sub-prime mortgage crisis, of 65 countries that record and report GDP only 11 escaped a recessionary period between 2006 and today.
  • There have also been a series of banking and financial regulatory changes across the world.These global safety nets and prevention policies are setting the tone for future strategies to avoid economic crises and minimize the prospective damage that occurs as a result of these unethical practices.
  • It is quite clear in this graphic, the global GDP growth dropped dramatically following the U.S. crisis, pitching the entire global economy into a recession.