Impact Of Financial Crisis On Financial Institutions

2699 Words Jan 5th, 2015 11 Pages
Impact of Financial Crisis on Financial Institutions
The purpose of this paper is to give a brief background of what led to the financial crisis of 2007-2009, as well as to provide an account of the underlying causes. The ultimate goal of the paper is to provide a quick look at how the financial crisis impacted financial institutions and markets. Poor risk management, inadequate capital reserves, and a too-big-to-fail mentality were root causes in the chaos that developed in the late 2000s. The resulting financial crisis had far-reaching impacts on liquidity, interest rates, and initial public offerings. Financial institutions such as pension funds, commercial banks, insurance companies, and mutual funds failed to use sound investment guidelines and risk management strategies to overcome the devaluation of mortgage-backed securities. Fortunately, current regulations have significantly increased oversight of these institutions on matters such as risk management and capital adequacy. Finally, this paper offers recommendations on how regulations can be changed to limit excessive risk taking.
Causes of Problems for Financial Institutions The financial crisis of 2007-2009 affected virtually every market in the world. In the United States, the Dow Jones Industrial Average fell by 53.8 percent in less than a year and a half, 1 out of every 45 homes were under foreclosure, all but two investment banks either failed or were acquired, the largest insurance company…
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