Banking
The definition of Asymmetric Information involves two parties, and which one party has more superior information and normally will not disclose the truth or harmful situation of a transaction to another party. The asymmetric information provided by the banks on the Collateral Debts Obligations is one of the causes that led to the sub-prime crisis in 2008 & 2009. Collateral Debts Obligations are financial instruments that are pooled by many sub-prime mortgages and sold to investors with attractive higher promised yields than normal bonds. Defaults and foreclosure increased and losses impacted the financial institutions that contribute to the crisis.
A financial institution is an institutions concerning finance, which is defined as managing money among individuals, businesses and governments. Some examples for financial institutions are mainly banks; retail or investment bank, insurance company, stockbroking, asset management and finance company. They are the intermediaries of financial markets. In the past, things were simpler and banks were only making loans and taking in deposit or withdrawal from individuals and businesses. Bankers were more discipline and manage their risk carefully. However, due to the fast paced technology change and The Agency Theory, agents want to take risk to show results and good performance. In order to deliver better profit, they bring in a diverse range of products and activities. The government normally regulates these financial institutions and today we have banks selling insurance products and insurance company selling banks products. Adding to the advanced technology today, just one click consumers can move their money quick and effectively. (Banking has changed: What does it mean for consumer? Investopedia)
The role of a rating agency is to assess the financial strength & creditworthiness of companies and governmental entities, and their ability to meet the interest and principal payments on their bonds and other
A financial institution is an institutions concerning finance, which is defined as managing money among individuals, businesses and governments. Some examples for financial institutions are mainly banks; retail or investment bank, insurance company, stockbroking, asset management and finance company. They are the intermediaries of financial markets. In the past, things were simpler and banks were only making loans and taking in deposit or withdrawal from individuals and businesses. Bankers were more discipline and manage their risk carefully. However, due to the fast paced technology change and The Agency Theory, agents want to take risk to show results and good performance. In order to deliver better profit, they bring in a diverse range of products and activities. The government normally regulates these financial institutions and today we have banks selling insurance products and insurance company selling banks products. Adding to the advanced technology today, just one click consumers can move their money quick and effectively. (Banking has changed: What does it mean for consumer? Investopedia)
The role of a rating agency is to assess the financial strength & creditworthiness of companies and governmental entities, and their ability to meet the interest and principal payments on their bonds and other
References: 1) Ryan C. Fuhrmann, November 2010. Banking Has Changed: What Does It Mean For Consumers? (Online) Available from http://www.investopedia.com/financial-edge/1110/Top-Signs-Its-Time-To-Switch-Banks.aspx#ixzz1zNRQKY6q. Cited 01 July 2012. 2) Neil Behrmann, Moody’s CFO sued over bond ratings, The Business Times Singapore, 23 July 2007 3) Gretchen Morgensen, October 2008. Credit Rating Agency Heads Grilled by Lawmakers (Online) Available from http://www.nytimes.com/2008/10/23/business/economy/23rating.html?_r=2. Cited 01 July 2012. 4) Charmian Kok, A quick guide to sub-prime issues, The Business Time Singapore, 10 September 2007 5) Janadas Devan, Sub-Prime: Words that hid a crisis, The Straits Time, 2 September 2007 6) Eric Petroff, September 2007. Who Is To Blame For The Subprime Crisis? (Online) Available from: http://www.investopedia.com/articles/07/subprime-blame.asp#ixzz1zNTpts3v. Cited 01 July 2012. 7) Diana B. Henriques. Bernie Madoff The wizard of lies. 2011. USA & Canada. Times Book. 8) Rex Nutting, MarketWatch. October 2008. Regulators say they made fateful mistakes. (Online) Available from: http://articles.marketwatch.com/2008-10-23/news/30810874_1_greenspan-shocked-financial-firms-financial-regulators. Citied 01 July 2012. 9) Investopedia Staff, November 2011. The Importance Of Diversification. (Online) Available from: http://www.investopedia.com/articles/02/111502.asp#axzz1zHOi2bmD. Cited 01 July 2012. 10) Helen Power, April 2008. John Paulson becomes $3.7bn hedge fund king betting against sub-prime. (Online) Available from: http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/2788378/John-Paulson-becomes-3.7bn-hedge-fund-king-betting-against-sub-prime.html. Cited 01 July 2012.