Term paper online Financial markets

Today, investment banks try to rebuild their business. The main thing is that they understand how important it is to have their own deposits, realized that relying solely on the investment banking market is very dangerous. Many banks applied for a banking license, first of all because deposits are more stable funding, respectively, the risks are much lower. Another advantage has the bank if it is universal and is engaged in corporate lending, because of more stable relationship between the company and the bank in this case, and the bank can offer a full range of services that the company may be required at any stage of its life cycle.

Nevertheless, it is still necessary to emphasize that today problems occur at all the financial institutions, and incorporation investment banking into the structures of a universal bank is not a panacea. The crisis has shown that problems have not only investment banks, but also commercial banks with significant retail business, such as: RBS, HSBC, etc. Almost all the banks faced with the problem of insolvency on the part of corporate borrowers, which business has suffered from the economic downturn.

Thus, all financial institutions came out of that crisis with different losses, that is why it is impossible to expect rapid growth, fast recovery of trading activity and risk operations of banks.

It is obvious that that crisis in many ways was unique compared to previous financial shocks. First of all because it can be regarded as the first crisis of the global economy and global financial system. Second, because of huge complex of anti-crisis measures taken by governments of developed and developing countries to overcome the effects of negative trends in the financial and real sector.

We can formulate few lessons of the crisis and recommendations:

1) The financial crisis, which is usually a consequence of the economic crisis, can be its primary cause. Therefore, to maintain sustainable development of the economy (or prevent its decline) it is important to ensure a stable and effective functioning of the banking system and financial markets, providing them with liquidity and security of the performance of their functions.

2) The systemic banking crises, as well as problems of individual banks (especially systemically important), must be prepared to in advance, giving the supervisor and other members of the system necessary powers to maintain financial stability, provide tools and sufficient resources, including mechanisms for early identification of problematic banks (the so-called early warning systems), the immediate supervisory action (such as prompt corrective actions), etc. (Rosemberg, 2008)

3) It is necessary to create a complex system of regulation and supervision, ensuring timely identification and adequate response to systemic risks and threats that arise due to the emergence of financial innovation, dissemination of new financial products, changes in business processes and practices of financial institutions. As example can be named the Council for Supervision of financial stability in the U.S., the European Council on systemic risks, the Council on financial regulation and systemic risk in France.

4) Large systemically important banks and financial groups require a special regime of prudential regulation and supervision. In this case no financial institution should be considered “too big to fail”. Lack of effective consolidated supervision can increase systemic risk, endangering the stability of the financial system as a whole. (Zhou 2010)

Systemically important institutions (such as banks) are the largest credit institutions of the country, which stability of the financial condition has an impact on the banking system as a whole. These institutions often claim to receive state support in the crisis years, or at times of lack of liquidity in the market. The main criteria for evaluation of systemically important banks may be the size of a credit institution and the volume of funds, including private contributions. (Zhou 2010)

The need for special attention to systemically important financial institutions is evidenced by the work of the Council of Financial

Stability, published in November 2010 – a recommendations to strengthen oversight of such institutions.

Thus, the crisis has put a question of the effectiveness of the banking system, especially of the activities of investment and commercial banks.

International Monetary Financial Committee, 2008, “Risk management practices including the identification of risk management challenges and failures, lessons learned and policy considerations”.
Marshal A., 2010, The Global Economic Crisis The Great Depression of the XXI Century. Global Research Publishers
Praet P., 2010, “Macro-prudential and financial stability statistics to improve financial analysis of exposures and risk transfers”. Fifth ECB Conference on Statistics on «Central Bank statistics: What did the financial crisis change».
Rosemberg, E. S., 2008, “Risk Management Lessons from Recent Financial Turmoil”, Conference on new Challenges for Operational Risk Measurement and management, Boston Massachusetts, May 14th.
Sorkin Andrew S., 2009, Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System and Themselves. Viking Adult
Thomson J. B., 2009, “On Systemically Important Financial Institu-tions and Progressive Systemic Mitigation”. Policy discussion paper.
Williams, Mark T., 2010, “Uncontrolled Risk: The Lessons of Lehman Brothers and How Systemic Risk Can Still Bring Down the World Financial System”. Mcgraw-Hill.
Zhou C., 2010, “Are Banks Too Big to Fail? Measuring Systemic Importance of Financial Institutions”. International Journal of Central Banking.

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