The global financial crisis (GFC) refers to the period of extreme stress in global financial markets...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
The global financial crisis (GFC) refers to the period of extreme stress in global financial markets and banking systems between mid 2007 and early 2009. During the GFC, a downturn in the US housing market was a catalyst for a financial crisis that spread from the United States to the rest of the world through linkages in the global financial system. Many banks around the world incurred large losses and relied on government support to avoid bankruptcy. Millions of people lost their jobs as the major advanced economies experienced their deepest recessions since the Great Depression in the 1930s. Recovery from the crisis was also much slower than past recessions that were not associated with a financial crisis. Regulation and policy errors were one among the main reasons behind the GFC. Regulation of subprime lending and MBS products was too lax. In particular, there was insufficient regulation of the institutions that created and sold the complex and opaque MBS to investors. Not only were many individual borrowers provided with loans so large that they were unlikely to be able to repay them, but fraud was increasingly common - such as overstating a borrower's income and over-promising investors on the safety of the MBS products they were being sold. The GFC unfolded with fall in the US house prices, missed repayments, financial system stresses, spillovers to other countries, failure of financial firms and panic in financial markets. Policy responses included lower interest rates, increased government spending and stronger oversight of financial firms. (Source: Reserve Bank of Australia). Required You are required to evaluate the role of various banking and non-banking financial institutions in causing the GFC. In particular the evaluation should include: - - The rationale behind the overexposure of banks to the housing sector Failure of regulatory institutions in controlling the overexposure to one sector Aftermath in bundling and reselling of these loans The global financial crisis (GFC) refers to the period of extreme stress in global financial markets and banking systems between mid 2007 and early 2009. During the GFC, a downturn in the US housing market was a catalyst for a financial crisis that spread from the United States to the rest of the world through linkages in the global financial system. Many banks around the world incurred large losses and relied on government support to avoid bankruptcy. Millions of people lost their jobs as the major advanced economies experienced their deepest recessions since the Great Depression in the 1930s. Recovery from the crisis was also much slower than past recessions that were not associated with a financial crisis. Regulation and policy errors were one among the main reasons behind the GFC. Regulation of subprime lending and MBS products was too lax. In particular, there was insufficient regulation of the institutions that created and sold the complex and opaque MBS to investors. Not only were many individual borrowers provided with loans so large that they were unlikely to be able to repay them, but fraud was increasingly common - such as overstating a borrower's income and over-promising investors on the safety of the MBS products they were being sold. The GFC unfolded with fall in the US house prices, missed repayments, financial system stresses, spillovers to other countries, failure of financial firms and panic in financial markets. Policy responses included lower interest rates, increased government spending and stronger oversight of financial firms. (Source: Reserve Bank of Australia). Required You are required to evaluate the role of various banking and non-banking financial institutions in causing the GFC. In particular the evaluation should include: - - The rationale behind the overexposure of banks to the housing sector Failure of regulatory institutions in controlling the overexposure to one sector Aftermath in bundling and reselling of these loans
Expert Answer:
Answer rating: 100% (QA)
Banking and nonbanking financial institutions played a major role in causing the global financial cr... View the full answer
Related Book For
Accounting
ISBN: 978-1118608227
9th edition
Authors: Lew Edwards, John Medlin, Keryn Chalmers, Andreas Hellmann, Claire Beattie, Jodie Maxfield, John Hoggett
Posted Date:
Students also viewed these accounting questions
-
The Crazy Eddie fraud may appear smaller and gentler than the massive billion-dollar frauds exposed in recent times, such as Bernie Madoffs Ponzi scheme, frauds in the subprime mortgage market, the...
-
Read the case study "Southwest Airlines," found in Part 2 of your textbook. Review the "Guide to Case Analysis" found on pp. CA1 - CA11 of your textbook. (This guide follows the last case in the...
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
Consider a cube that has 5cm length sides. What is the surface area to volume ratio of this cube? Report your answer in cm/cm Report your answer to one decimal place. QUESTION 12 Consider a cube that...
-
What are four different forms of cash?
-
Find the slope of the tangent line to the graph of at the given point. Graph and the tangent line. f(x) = x 2 + 2 at (-1, 3)
-
The entropy change of a system is zero in a/an (a) Reversible process (b) Isochoric process (c) Isobaric process (d) Reversible adiabatic process.
-
A road construction project would increase the road capacity around the outside roads from International Drive to Disney World by 200 cars per hour (Problem 11-19). The two paths affected would be...
-
Q3: Seasonality Analysis: Demand Month 2020 2021 January 1150 1250 2022 2023 1270 1120 February 1250 1400 1550 1350 March 1150 1200 1300 1370 April 1400 1450 1500 1105 May 1110 1250 1600 1350 June...
-
Consider the calculation of roots of an equation z N = where N 1 is an integer and = ||e j a nonzero complex numb (a) First verify that there are exactly N roots for this equation and that they...
-
The gap between exports and imports in a nation's economy iscalled the ___________.? A) trade surplus B) trade balance C) trade deficit D) trade inventory
-
You plan to open a retirement account. Your employer will match 50 percent of your deposits up to a limit on the match of \($2\),500 per year. You believe the fund will earn 12 percent per year over...
-
You have your eyes on a new automobile costing \($25\),000. If you wrote a check for the \($25\),000, you could drive off in your new car. However, you dont have it and must finance \($20\),000...
-
What single sum of money occurring at t = 5 will be equivalent to a cash flow series consisting of \($7\),000 at t = 1, \($6\),000 at t = 2, \($5\),000 at t = 3, \($4\),000 at t = 4, \($3\),000 at t...
-
Using real-word examples, evaluate methods that might be used to reduce inflation.
-
Using real-word examples, discuss the Phillips curve in terms of the trade-off between inflation and unemployment.
-
a) What is Garnishee order and where is it applied? Narrate two situations where the Garnishee order will not be applicable. b) What are the uses of the Right of General Lien and Right of Set Off?...
-
(8%) Problem 6: A student attaches a f= 3.5 kHz oscillator to one end of a metal rail of length L = 25 m. The student turns on the oscillator and uses a piezoelectric gauge at the other end to...
-
McKees Outdoor Store Ltd operates three departments, including a department that has consistently shown losses. For the year just ended, the fishing supplies department showed the following...
-
Victoria Holmes registered as a financial adviser several years ago. An income statement for the current period, prepared using cash accounting, is presented below. GST is ignored. HOLMES FINANCIAL...
-
Richards, David and Andrews decided to enter into a partnership agreement as from 1 July 2015, some of the provisions of which were as follows. 1. Richards to contribute $20 000 cash, inventory the...
-
How do you use functional requirements for this chapter?
-
How do you apply nonfunctional requirements for this chapter?
-
Identify the EBT for the word deployment.
Study smarter with the SolutionInn App