International Banking Essay Example | Topics and Well Written Essays - 2000 words

International Banking - Essay ExampleThe 2008 crisis is considerably the first crisis in the era of globalization, as caused by a number of factors which include funding liquidness, and market liquidity (Kolb, 2009, p. 10). Funding liquidity is the handiness of sufficient specie in the enceinte deposit of a pecuniary institution. This means that funding liquidity happens occur whenever entrusts cannot fund their own businesses. mart liquidity, on the other hand, takes into considerations issues to do with trade institutions which are slow able to do business within the available markets therefore, market liquidity risk factors are the rugged situations when any market is not sufficient enough for easy trade activities (Pedersen, 2008, p. 13). The roles of Funding Liquidity and Market Liquidity in the 2008 Crisis According to Strahan Philip (2012), funding liquidity risks and market liquidity risks contributed much to the occurrence of the 2008 financial and economic downturn . Towards the end of 2007 and the beginning of 2008, the consequences of banks better-looking liquidity to loaners and creditors in the worlds leading economies was matte up throughout the globe. The banks in the USA began lending loan liquidity to people this led to weakening of their capital bases. It additionally exposed banks to funding liquidity risks, which eventually lead to bank runs. ... This saw the JP Morgan Chase bank running out of cash in its deposit pots. The issue of securitization is another cause of the financial crisis. American banks came into one pool in order to create a sense of security while giving out irresponsible loans. This proved dangerous since the banks gave out risky loans to many individuals who could not afford to function these loans at high interest rates as was expected of them (Pinyo, 2008, pp. 1-6). Due to runs, the banking institutions got involved into the trend of cash borrowing in order to create more securitization. As a consequence, p roperty prices started fluctuating, thereby do panic even in the Sub-prime mortgage market (Rhodes & Stelter, 2010, p. 32). Banks that did not have enough cash in their accounts began repossessing their high value properties such as buildings. Bigger banks, on the other hand, started to buy securities from the minor banking institutions with the intentions of salvage the economic situation as had prevailed. However, this instead resulted into greater damages within the real world delivery (Weisberg, 2010, p. 46). At far, all these economic turnovers resulted into funding liquidity risks and market liquidity risks within the banks themselves, hence scaring outside(a) a number of investors who then reacted by withdrawing their deposits and thus, commodities prices fell to the extreme levels. The chart below indicates Liquidity whorled as caused by the market and funding liquidity risks. Sources (Pedersen, & Garlean, 2007 Pedersen, & Brunnermeier, 2008) How to measure bank funding liquidity risk and market liquidity risk There are several ways of measuring funding