The Bank Of New Zealand

The fact that banks control 97% of the world's money supply makes them a vital institution. Banks are the engine of our modern financial system and a source for economic growth. The bank's ability to create credit can have destructive effects; the Great Depression of 1929 and the Great Recession of 2008. In both cases, banks spurred on an asset bubble through overextending credit to aid the purchase of assets. The result was an economic collapse that wiped out wealth and reduced credit creation which stalled productive investments. The lessons of the two great economic collapse support the notion proposed by the author, that bank credit for transactions that do not contribute to the economy should be restricted.

Because of this downfall of the housing market, the U.S. economy fell along with other markets across the country. Homeowners had mortgages higher than what their homes were valued at, the decline in housing prices caused many people to default on their mortgages which caused the values of mortgage backed securities and CDO’s to collapse, leaving banks and their financial institutions holding those securities with a lower value of

The mortgage market was attractive to many investors due to the money outflow that it generated. It was unattractive to some investors due to the stress, competition, and buying

When the housing bubble came tumbling down, there were high defaults rates on the electorate and this led to the emergence of high risk borrowers (Bianco, 2008). These were people with a questionable financial history and may have lacked the sufficient means to sustain their mortgage payments and hence, went under. This occasioned massive loses to all the players in the housing sector. The worst hit was the lenders and the various investors.

The housing market had started to decline in 2007, after reaching peak prices in 2006. There was an extremely high amount of subprime mortgages that had been issued in the early 2000’s. Homeowners could no longer afford to live in their homes, payments started going to default, and foreclosures started to rise. According to The Washington Post, there were five contributing factors to the housing market crash: low-doc loans, adjustable- rate mortgages, equity line of credit, more money down than needed, and mortgage insurance.

EXAMINE THE FACTS. The housing market was making huge financial gains by misleading buyers into buying home that were out of their budget, lenders and originator created unconventional mortgages to people who were at high risk for default.

Big banks in the middle 2000s were flourishing of the money made from selling the mortgages to big investors. While this was great when the banks were giving money to people who were reliable and were going to pay their mortgages every month. And when the investors were making such a hefty profit they wanted more. This is when Subprime mortgages were widely used, giving less reliable lower credit scores the opportunity to get homes. The banks knew that these people would not necessarily always be able to pay, which was the one of many mistakes (Crash Course.) The banks learned that while it did sometimes work out, the consequences of giving out too many unreliable mortgages can bring the whole nations economy down for the housing market has always been the pillar of the economy. The greed of the extremely wealthy continued to overpower the common sense of the

This caused massive losses in mortgage backed securities and many banks and investment firms began bleeding money. This also caused a glut of homes on the market which depressed housing prices and slowed the growth of new home building, putting thousands of home builders and laborers out of business. Depressed housing prices caused further complications as it made many homes worth much less than the mortgage

a growing flow of capital into real estate in an era of low interest rates and the widespread

In the period between the years 2005 to 2009 the demand for housing changed drastically. Financial institutions were involved in some more deceitful lending practices. They began offering what are known as adjustable-rate subprime mortgages, which is when an institution gives out a loan to someone with a lower credit score and are thus a higher risk. With the low-interest rates being offered, an ever increasing amount of people took out loans in hopes to purchase a home to make a profit. This caused the demand for houses to skyrocket, which in turn increased the prices. With prices increasing, more and more people were speculating that the costs of houses would increase indefinitely, and with ease of access to these mortgage loans

Since the onset of the financial crisis 2008, the sovereign debt crisis in western economies and the new financial regulation with Basel III coming up, the financial industry faces the challenge of reinventing itself. The ring-fence for Commercial and Investment Banking, and new economic and regulatory capital requirements will determine the kinds of products banks will be able to distribute. It will have a huge impact in the Investment Banking business, which will suffer tough regulation and supervisory procedures. At the same time, credit risk models will be reviewed because they have failed to predict the crisis of 2008. The current financial and economic crisis doesn’t have any precedent in the past.

Commonwealth bank of Australia was founded back in 1911 by the commonwealth bank act that was in favour of bank nationalization. The bank started its first branch in 1912 in Melbourne and later joint hands with the state savings bank in Tasmania and a year later it was able to spread its branches in six different states. After 1920 the bank gradually expanded its role in central banking and along with time continued expanding and earning a good reputation in the market (Australia, 2014). Commonwealth Bank of Australia is also one of the multinational banks of the world that provides a number of financial services to its clients such as managing the funds, retail services, investment services etc. This group has also got itself listed in the Australian Securities Exchange as the top companies that have the objective of maintaining the total shareholder 's return in the upper quartile among the other listed peers over a period of five years (Austrailia, 2014).

The new lackadaisical lending requirements and low interest rates drove housing prices higher, which only made the mortgage backed securities and CDOs seem like an even better investment. Now consider the housing market which had become a housing bubble, which had now burst, and now people could not pay for their incredibly expensive houses or keep up with their ballooning mortgage payments. Borrowers started defaulting, which put more houses back on the market for sale. But there were not any buyers. Supply was up, demand was down, and home prices started collapsing. As prices fell, some borrowers suddenly had a mortgage for way more than their home was currently worth and some stopped paying. That led to more defaults, pushing prices down further. As this was happening, the big financial institutions stopped buying sub-prime mortgages and sub-prime lenders were getting stuck with bad loans. By 2007, some big lenders had declared bankruptcy. The problems spread to the big investors, who had poured money into the mortgage backed securities and CDOs. They started losing money on their investments. All these of these financial instruments resulted in an incredibly complicated web of assets, liabilities, and risks. So that when things went bad, they went bad for the entire financial system. Some major financial players declared bankruptcy and others were forced into mergers, or needed

As the property bubble exploded there was an acute fall in prices and a proportional rise in foreclosures. At this point banks had to revalue their assets and sell at fire

Moreover, the State Bank of Vietnam‟s regulations, the bank‟s internal policies and annual reports as well as the transaction office‟s business results also provide significant findings for the research. The analysis of both primary and secondary data shows that this bank has been trying to adopt a close-to-standard credit risk management framework with numerous published documents governing the day-to-day credit activities. Some good points are a complete lending procedure or a standard internal credit rating system – SYMBOLS. However when it comes to actual operation, some aspects should be considered, e.g. the staff training quality or the priority treatment to high-value customers. Especially, the high non-performing loans at the transaction office and the non-complied loss provision must be reviewed and adjusted. These discoveries have led to several constructive improvement suggestions for the case bank. Besides, recommendations for new research directions have also been made. Key words Risk, Banking Risks, Credit Risk, Credit Risk Management