Impact of the Financial Crisis on Banking Sector Essay Example
Impact of the Financial Crisis on Banking Sector
The current financial crisis, which started in the Unites States, has dominated the headlines all around the world since summer 2007. The world has been experiencing one of the most severe crises such as the Great Depression from 1929. This started as a subprime crisis with problems in the subprime mortgage market in the USA in 2007 which spread throughout the world. This subprime turmoil turned soon to a global financial crisis and turnaround to a worldwide recession (Calomiris, 2008). The effect of the financial crisis resulted in problems in the financial systems of many countries. The objective of this paper is to get an overview of the impacts of the current financial crisis on the banking sector in main regions of the world and also its impact on different industries.
In this section some background information of the current financial crisis on banking sector will be discussed. The subprime mortgage market has experienced a boom in the United States during the last few years because of the attractive mortgage loan terms. In addition, subprime mortgage borrowers were a new market for banks in the USA even though in the U.K., larger mortgage loans were made available. Furthermore, homeowners borrowed more money against their homes to fund holidays, car purchases, home extensions and second homes etc. Second homes might be holiday homes or homes bought to let with the intention of making more money as house prices rose. In addition, lenders such as Northern Rock even loaned more than the value of the property. This boom ended with the start of the current financial crises. In addition, there were a lot of hidden risks and failures in the mortgage market like the liquidity risk, credit risk, and interest rate risk which makes the banking sector vulnerable (Calomiris, 2008). Figure 1: U.S. and European Bank and Insurance Company Market Capitalization, Writedowns, and Capital Infusions
According to Figure 1,
The current financial crisis, which started in the Unites States, has dominated the headlines all around the world since summer 2007. The world has been experiencing one of the most severe crises such as the Great Depression from 1929. This started as a subprime crisis with problems in the subprime mortgage market in the USA in 2007 which spread throughout the world. This subprime turmoil turned soon to a global financial crisis and turnaround to a worldwide recession (Calomiris, 2008). The effect of the financial crisis resulted in problems in the financial systems of many countries. The objective of this paper is to get an overview of the impacts of the current financial crisis on the banking sector in main regions of the world and also its impact on different industries.
In this section some background information of the current financial crisis on banking sector will be discussed. The subprime mortgage market has experienced a boom in the United States during the last few years because of the attractive mortgage loan terms. In addition, subprime mortgage borrowers were a new market for banks in the USA even though in the U.K., larger mortgage loans were made available. Furthermore, homeowners borrowed more money against their homes to fund holidays, car purchases, home extensions and second homes etc. Second homes might be holiday homes or homes bought to let with the intention of making more money as house prices rose. In addition, lenders such as Northern Rock even loaned more than the value of the property. This boom ended with the start of the current financial crises. In addition, there were a lot of hidden risks and failures in the mortgage market like the liquidity risk, credit risk, and interest rate risk which makes the banking sector vulnerable (Calomiris, 2008). Figure 1: U.S. and European Bank and Insurance Company Market Capitalization, Writedowns, and Capital Infusions
According to Figure 1,