The Background Of 2007-2008 Financial Crisis - 4604 Words

Chapter 2. Background 2.1 Introduction This chapter is about the background of 2007-2008 financial crisis. The 2007-2008 financial crisis has a huge impact on US banking system and how the banks operate and how they are regulated after the financial turmoil. This financial crisis started with difficulty of rolling over asset backed commercial papers in the summer of 2007 due to uncertainty on the liquidity of mortgage backed securities and questions about the soundness of banks and non-bank financial institutes when interest rate continued to go up at a faster pace since 2004. In March 2008 the second wave of liquidity loss occurred after US government decided to bailout Bear Stearns and some commercial banks, then other financial institutions took it as a warning of financial difficulty of their peers. In the meantime banks started hoarding cash and reserve instead of lending out to fellow banks and corporations. The third wave of credit crunch which eventually brought down US financial system and spread over the globe w as Lehman Brother’s bankruptcy in August 2008. Many major commercial banks in US held structured products and commercial papers of Lehman Brother, as a result, they suffered a great loss as Lehman Brother went into insolvency. This panic of bank insolvency caused loss of liquidity in both commercial paper market and inter-bank market. Still banks were reluctant to turn to US government or Federal Reserve as this kind of action might indicate delicacy ofShow MoreRelatedReasons For The Year / 08 Deepened Financial Crisis Of The European Union ( Eu ) And Critically Assess1138 Words   |  5 PagesExplain the reasons for the 2007/08 deepened financial crisis in the European Union (EU) and critically assess its response to its crisis. Introduction As a whole, the regulation of banking institutions and financial markets are considered as a debatable issue. 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