Discussion of the Main Reasons that have Resulted in the Bank Disintermediation

These actions led to the fall in prices of securities. Loans were liquidated and borrowing from banks and other lenders became difficult. Interest rates would rise rapidly and sharply. This type of financial hardship led to the liquidation of bank credit. Over a long enough span, this liquidation would lead to money crises (Federal Reserve System 5th ed pp. 10-11).

This means banks “…must quickly liquidate loans and sell its assets (often at rock-bottom prices) to come up with the necessary cash, and the losses they suffer can threaten the bank’s solvency.” The next factor was unemployment. Many people lost their life-saving in investment. With the lack of fund, many stop spending and saved with

The Stock Market Crash played a major role in bank failures. After the crash, people were indifferent about the stability of banks, so they all began taking out their savings. Banks no longer had the currency to stay open. For those who did not take this

The banking industry has over the years evolved from simple to large and complex organization. They have grown from one street building into having multiple branches some of which are international. Their clients range from individual and institutions to governments and other banks. Banks do not manufacture physical things. Their work is simply services for money (Koch & MacDonald 2010). Such services include storing, lending and managing money. All people and institutions, as well as governments, need money to operate accordingly.

Financial crisis is really a major concern for all economies in the world. Every time a crisis occurs, companies, banks and financial institutions should draw their own lessons, because if the lessons are not recognized, they may still go on the trail of failure of

Government departments are instrumental to a flourishing and secure economy. They are in place to serve their constituents and ought to keep that in mind. The Federal Deposit Insurance Corporation (FDIC) fits this well and is in place to ensure that bank users are protected in instances of economic downturn and that their money is insured. In this way, regulation is extremely necessary to ensure a stable economy in instances of financial instability. To completely understand the FDIC, it is important to understand why and how it was created, its history, major responsibilities and who the leaders are.

As for economic downturn, the lack of regulation and the failures of banks were both caused by the Gulf Wars. The United States government was too focused upon military conflict outside of its borders to pay attention to the loopholes that banks were using to make unwise lending decisions.

From a macroeconomic perspective, banks and other financial institutions are of critical importance. Not only do they make loans to homeowners and businesses, but these institutions make loans to each other and also influence the money supply. With this in mind, the government as well as the general population have a great interest in insuring the stability of these institutions. So, in our case, when banks are seriously threatened with collapse, even through fault of their own, the state has an ethical duty to ensure their survival through any means necessary. This is a consequence of the deep connections these institutions have with all facets of our society. One clear ramification would be decreased access to loans, if a bank is failing, it will be more hesitant or even cease to make loans to homeowners and small businesses. What is more devastating is the effect this will have on our

The Great Depression Wiki Introduction: The Great Depression was the longest and biggest economic downturn in the history of the United States. It began after the crash of the stock market in October 1929, which wiped out millions of investors. Over the next few years, it caused a major rise in the levels of unemployment as failing companies laid off workers.

In 1982 the Regan party deregulated savings and loan companies which allowed them to make risky investments with depositors money. In the late 1990’s the creation of derivatives occurred, which actually just increased the markets instability.

In order to get around this potential moral hazard, Fed acted as an advisory role and invited major investment banks to help LTCM, instead of directly pouring funds into LTCM.

Bank Failures (Over 9,000 banks in the US and over 100,000 around the world failed as deposits were uninsured and people lost their savings. The surviving banks unsure of the economic situation and concerned for their own survival refused to

The third reason given was the bad banking structure which was in place in the 20's and into the 30's. Banks at this time were run individually, thus, when a bank failed or went belly up because of aggregate deposits, it started a domino effect. In 1929 alone, 346 banks closed their doors, leaving people out in the cold, with no money, money which they had trusted in the hands of these banks. This of course left the people with a bad taste in their mouths, and caused them to stop putting money in banks, relying instead on the bottom side of their mattresses. The bad running of banks ties into corruption also. The men who ran banks, men like Charles E. Mitchell, were more interested in keeping the stock market boom going rather then the health of the banks which they ran. These men kept interest rates low and gave bad loans to people who mostly had no hope of ever paying back.

This chapter is about the background of 2007-2008 financial crisis. The 2007-2008 financial crisis has a huge impact on US banking system and how the banks operate and how they are regulated after the financial turmoil. This financial crisis started with difficulty of rolling over asset backed commercial papers in the summer of 2007 due to uncertainty on the liquidity of mortgage backed securities and questions about the soundness of banks and non-bank financial institutes when interest rate continued to go up at a faster pace since 2004. In March 2008 the second wave of liquidity loss occurred after US government decided to bailout Bear Stearns and some commercial banks, then other financial institutions took it as a warning of financial difficulty of their peers. In the meantime banks started hoarding cash and reserve instead of lending out to fellow banks and corporations. The third wave of credit crunch which eventually brought down US financial system and spread over the globe was Lehman Brother’s bankruptcy in August 2008. Many major commercial banks in US held structured products and commercial papers of Lehman Brother, as a result, they suffered a great loss as Lehman Brother went into insolvency. This panic of bank insolvency caused loss of liquidity in both commercial paper market and inter-bank market. Still banks were reluctant to turn to US government or Federal Reserve as this kind of action might indicate delicacy of

This will enable financial institutions and markets to better execute their important function that is to monitor investments and exert corporate governance. Their control can compel firms to pursue activities which generate higher value and retain investor’s confidence which is essential for continuous flow of capital