The current situation of the financial industry is definitely something worth talking about. The financial industry does not only play key role in shaping up the inflation rate of the country but also manages the buying powers of the people living in that country accordingly. Dramatic events have occurred in the past that have taken the financial industry to the storm and caused havoc for the people. One needs to identify that banks get effected by the crises caused by the financial industry to the most. Even a minor fluctuation in the situation of financial health of a country’s economy might cause destruction for the banks working and operating in it.
Financial crises in the past:
It’s been more than a year since the entire globe has been facing the financial catastrophe. One cannot witness an immediate end to this current financial situation of the issues faced by the economy of the world. In future, people might witness such crises in a much more severe quantity! The reason being the fact that subprime mortgages have increased in the recent past causing issues to the future of the economy. Because of this extensive mortgage subprime, the credit rating has gone down and has reduced the value of the products.
The mortgage issues:
The after effects of the lower credit ratings caused by over the top mortgage system might lead to the banks being the main victim of the damage. In such condition, the pressure on the banks enhances manifolds and they need to fund the liquidity. Bank, in such times, are required basically for the reputation saving and balancing up the balance sheet once again. The defaults of mortgage have been loosed by the banks as the results of which they are moving towards freeze as well as the businesses getting dried up. One thing that a person needs to take in account on such situation is the fact that if such financial situation stays on for a very long period of time, it might lead to regulatory actions taken by none another than US with the help of Consumer Protection Act.
The financial effects:
One of the main reasons why financial industry is under the crisis is a regulation that was passed in the United States of America that forced the banks to help customers buying as many homes as possible. This situation led to the purchase of mortgage assets by the consumers making the functioning of the banks even more difficult than the usual. With the purchase of excess amount of mortgage, the margins of the subprime mortgage raised from the usual rate. However, the situation worsened when more than half of the consumers who had opted the lending option couldn’t manage to pay it off, the credit business got even more tougher. Not only this but due to the recession season, the level of the imported goods demanded as imports also spurred up. However, the momentum was gained by the economy some time later when the stock exchange took a sudden turn by enhancing the prices of share. That nonetheless, was considered to be momentary the economic situation again fell back to crises in no time!