Essay on Financial markets

The banking crisis in 2008, and then the subsequent world banking crisis questioned the reliability of the entire financial system, has made a real failure of banks of any size, any state. The global financial crisis of 2008 (sometimes called the “great recession”) appeared in the September – October 2008 in the form of a strong deterioration of key economic indicators in most developed countries, and later the global recession. The forerunner of the financial crisis in 2008 was the mortgage crisis in the U.S., and in the summer of 2007 the mortgage crisis has gradually started to transform into financial, and affected not only the United States, but many other countries. It is necessary to especially emphasize the bankruptcy of large banks that have undermined confidence in the stability and reliability of the banking system of the United States and other countries.

In this paper it is necessary to consider systemic risk the impact of systemic risk in the financial system, risk management and crises of the financial system. Next, it is necessary to consider he crisis of the financial system in 2008 in the U.S., which led to the collapse of major U.S. banks. The crisis has become an important indicator of instability of the financial system, problems of regulation and ensuring the stability of the banking system.

SYSTEMIC RISK AND CRISIS IN BANKING SECTOR

Under the banking crisis has traditionally meant a steady failure of a large number of banks to fulfill their obligations to the counterparties, which is expressed as a breach of settlement and cash service obligations to depositors, holders of bank liabilities, in bankruptcy and liquidation of banks. If the banks are beginning to experience serious difficulties in carrying out the largest volumes of core banking operations, the crisis can be considered as a system that is threatening the entire banking system.

Experience of various countries shows that banking crises reflect the complex process of adaptation of banking systems to the new macroeconomic conditions. The liberalization of foreign economic relations and the deregulation of the banking sector in both developed and developing countries, globalization of the financial services market, market reforms in countries with economies in transition – all of these processes led to macroeconomic instability and economic imbalances and negatively affecting the state of bank balance sheets.

Because of increased volatility the banking system proved to be highly susceptible to such traditional factors of banking crises, as the economic recession, turmoil in the real economy. The decline in production, the deterioration of the solvency of borrowing enterprises are the traditional causes of banking crises. The degree of impact of the crisis in the economy on the banking system depends on many factors. However, it is important to consider risks that accompany the activities of banks, especially systematic risks.

Risk as an integral part of economic, political and social life that accompanies all areas and activities of commercial banks operating in market conditions. At present, uncertainty of events and processes affect the fundamental socio-economic activities, that is why risk become an essential characteristic of economic activity. Of the variety of risks that exist in the market economy, systemic risks of commercial banks pose the greatest threat to economic and social stability of society. This is due to a special function of commercial banks, without normal operation of which it is impossible to maintain continuity of social reproduction, and the complexity of managing of systemic risk.

Systemic risks in commercial banks were particularly evident during the last global financial crisis, characterized by great depth and scope. Financial crises have a systemic effect on the financial system and change them, which determines the need to identify new approaches to the study of theoretical and practical problems of management of systemic risk in commercial banks to ensure their sustainability. Consequently, the ability to predict, prevent and manage systemic risk is a major and indispensable condition for the normal functioning and development of the economy. (Rosemberg, 2008)

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