Current Financial Crisis in the Banking Industry

Current Financial Crisis in the Banking Industry

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Institution

Introduction

Financial crisis can be defined as a disturbance to the financial markets where by the risks become higher, to a level that the financial firms are not able to direct funds to those who have investment opportunities.(Mishkin ,1992)

Financial crisis can also be defined as a circumstance whereby, the assets in a financial institutions drop instantly. This in turn makes the investors, to withdraw from their accounts or to sell their assets. (“Investoped). This research, aims at exploring the current financial crisis as experienced in the banks.

The Central bank of Nigeria started the first level of consolidation in 2005, so as to provide an efficient banking that would enhance safety of investor’s money. Later after this establishment, the crisis hit the market, and the systems didn’t work as designed. The current financial crisis started in the USA back in the 2007. I started due to credit contraction policy due to relaxation in the financial system. The crisis showed itself when it became difficult for the households, when making high payments. As a result, there was a contraction in the US so as to tighten their regulations and also to deteriorate their balance sheet. This has made the financial firm cease lending so as to ensure that that they have adequate capital. (Alugo,Soludo, 2009)

According to ( Nnanna, 2004), there is crisis in the financial sector due to integration of human capital. This is also seen as a challenge, more so when merging the firms. When merging the firms, there is a challenge of variations in altitudes, priorities and even processes. She further argues that if integration is not properly done it can lead to collapsing of the firms.

According to (Mobolaji 2008), crisis also arise due to short term view of banking stocks. The investors who invest with an intention of making quick money. This is mostly after consolidation exercise, as they end up frustrated. This is also because the essentials of consolidation does not support.

The other crisis in the financial firms is the stock markets. The corporate risks increase, and this causes inaccessibility in the exchange markets. This as a result causes loss of confidence in the investments. The existing stock is consistently depreciating in value hence crisis. ( Aluko , 2009)

According to Soludo, (2009), pressure to raise funds is also a crisis. This is the inability to raise more capital. this hinders development, and also lack of funds to finance short term l projects. This has led to credit line recalls. By the financial intuitions and banks.

The other cause of crisis is liquidity. Liquidity in excess has made the firms to lent to the subprime borrowers, as they want quick returns in investments. There are poor judgments by investors as a result. There is also higher debts by individuals and companies.(Aluko, 2008).

References

Adamu A (2009) The Effects of global Financial Crisis on the Economy

Adamuabdulmumeen@yahoo.comAllen & Thomas , (2000) Poverty and Development into the 21st Century,

Oxford University press, Uk