Free Essay

Australian and New Zealand Schemes During Global Financial Crisis

In: Business and Management

Submitted By rebc
Words 2953
Pages 12
1.0 Introduction The global financial crisis of 2007 transmitted shock waves worldwide urging international governments to prepare defensive measures to combat this economic turmoil. Hence, on 12th October 2008, the Australian and New Zealand governments introduced analogous schemes to guarantee liabilities issued by a wide range of financial institutions whereby prior to this phenomenon, neither nation had deposit insurance arrangements in place, a distinctive characteristic common in other developed nations. The Australian Government introduced a blanket guarantee on deposits namely the Australian Government Guarantee Scheme for Large Deposits and Wholesale Funding until October 2011. Consequently, it was cultured to a scheme in which the first AUD$ 1 million was to be guaranteed free of charge, with larger and foreign branch deposits able to be insured for a fee (Committee, 2009).

The Crown Retail Deposit Guarantee Scheme and Wholesale Funding Guarantee Facility were implemented at the same time in New Zealand. The initial coverage was NZ$1 million per deposit-holder per institution, but this was reduced to NZ$500,000 for bank deposits and NZ$250,000 for non-bank deposits in September 2009 when the scheme was extended to the end of 2011 (Committee, 2009).

Both governments also introduced unlimited wholesale bank debt funding guarantee schemes available for new borrowings; Whole Funding Scheme and Crown Wholesale Guarantee Scheme respectively in Australia and New Zealand. These schemes were intended to last until conditions normalized and to cover senior unsecured debt instruments with maturities up to 60 months (Schwartz, 2010). In this report, we will discuss the reasons both these countries introduced these schemes during a global financial crisis. This will be followed by the analysis of the features of the above schemes and how likely it has transform the forces shaping the economic scenario today.

2.0 Reasons for introducing Schemes in Australia and New Zealand
2.1. Global Financial Crisis The collapse of Lehman Brothers in 2008 was the turning point in the economic cycle that catalyzed the extreme uncertainty about the stability of the global financial system. This heightened aversion risk led to pressure on the availability and cost funding for banks around the world. This was reflected through the Credit Default Swap (CDS) premiums whereby the perceived risk of large banks rose to unprecedented levels (Appendix I) (Schwartz, 2010). CDS is a “contractual agreement that transfers credit risk from one party to another” (Edirisuriya, 2010). Hence, ADI’s were affected by these developments with increasing reluctance among investors to buy long-term bank debt, and signs of nervousness among some depositors.

From graph 1, it can be seen from using the sample countries of Australia, US, UK and Europe, CDS premiums reached a peak at the end of September, reflecting the rise in uncertainty following the default by Lehman Brothers. Hence, in order to stabilize the CDS premium, debt guarantees have been executed. It can be foreseen from graph 1 that the CDS premium declined drastically in the first half of October following the espousal of debt guarantees by major countries. From then on, the premium remained quite steady in all countries except the United States until the beginning of 2009 (Panetta, Faeh, Grande, Ho, King, & Levy, 2009). In the first half of January, however, CDS started climbing again and peaked around mid-March in most countries, to then gradually return to levels closer to the pre-Lehman phase.

Graph 1: Banks’ senior 5-year Credit Default Swap (CDS) Premiums (Schwartz, 2010)

2.2 Promote financial stability by assisting ADI’s to continue access funding In order to boost people’s confidence to continue depositing in ADI’s and achieve financial stability, deposit guarantee schemes (DGS) and wholesale funding guarantees (WFG) are executed.
2.2.1 Deposit Guarantee Schemes (DGS) Generally, DGS offer unambiguous deposit protection and guarantee that if a bank fails, depositors will be able to recover at least a fraction of their deposits (Cariboni, Branden, Campolongo, & De Cesare, 2008). It is introduced during financial calamity to prevent panic and ambiguity from causing bank runs leading to collapses of institutions. As in the case of both Australia and New Zealand, they may also be intended to safeguard competition by preventing a flight of deposits from smaller institutions into larger ones. These occur when depositors have the mind set that larger institutions are less likely to default (Committee, 2009).

Besides that, DGC is aimed to supply a (virtually) risk-free asset for retail savers in order to hearten or safeguard levels of savings. Unlike WFG’s, they apply to the entire stock of eligible deposits, not just new deposits made after the introduction of the guarantee (Committee, 2009).

Governments provide unequivocal guarantees against default on bank debt and other non-deposit liabilities. These actions help banks sustain access to medium term funding at sensible cost, offsetting the drying-up of substitute sources of funding (such as securitization) and the boost in credit spreads. The deliberate effect is to decrease liquidity risk and lower overall borrowing costs. The potential undesirable effects of this type of appraise include segmentation and crowding-out of other credit markets and even distortions in the functioning of bond markets (Panetta et al., 2009).

2.2.2 Wholesale Funding Guarantees (WFG)

Wholesale Funding Guarantees (WFG) was introduced to assist the continued access of local financial institutions to international financial markets on a scale corresponding with the overall financing needs of their respective countries. Rather than solving solvency problems, WFG was devised to address short-term funding and liquidity issues. Due to a “flow” problem arising from the disruption of financing channels in international wholesale debt markets, WFG was implemented and were to apply only to the new flow of debt issues (Committee, 2009).

2.3 ADI’s are not placed at a commercial disadvantage compared to their international competitors Due to the chain reaction of the Lehman Brothers collapse in September 2008, banks worldwide have adopted the strategy to explicit guarantees on liabilities to help banks access to wholesale funding. Hence, governments from countries such as Canada, France, Germany, Italy, Japan, the Netherlands, Spain, Switzerland, the United Kingdom and the United States have announced strengthening of deposit protection arrangements and the provision of guarantees for wholesale debt.

From Table 1 below, the Irish Government was the first step up by providing guarantee with an unlimited cap for deposits at the largest institutions. This was followed suit by Denmark and other countries. Around the same time as they extended deposit protection arrangements, many governments also provided guarantees over wholesale funding, partly in response to the Irish Government’s decision to do so (RBA & APRA, n.d). Only Japan and Switzerland have not formally adopted any new debt guarantee scheme, though the Swiss government did make a verbal commitment to provide guarantees in case of need (Panetta et al., 2009).

Hence, to avoid both of Australia and New Zealand to be in a disadvantage compared to their international competitors, these countries announced their respective guarantee scheme on the same date which is the 12th of October, 2008.

Table 1: Announced Wholesale Funding Guarantee Schemes (a)
Date of initial announcement(b) Country Initial finish date Initial maximum maturity date

30-Sep-08 Ireland 29-Sep-10 29-Sep-10
06-Oct-08 Denmark 30-Sep-10 30-Sep-10
06-Oct-08 Germany 31-Dec-09 31-Dec-12
08-Oct-08 United Kingdom 09-Apr-09 13-Apr-12
09-Oct-08 Belgium 31-Oct-09 31-Oct-11
10-Oct-08 Spain 01-Jul-09 01-Jul-12
12-Oct-08 Australia Unspecified Rolling 5 years
13-Oct-08 France 31-Dec-09 31-Dec-14
14-Oct-08 United States 30-Jun-09 30-Jun-12
19-Oct-08 South Korea 30-Jun-09 30-Jun-12
20-Oct-08 Sweden 30-Apr-09 30-Apr-12
21-Oct-08 Netherlands 31-Dec-09 31-Dec-12
22-Oct-08 Finland 30-Apr-09 30-Apr-14
23-Oct-08 Canada 30-Apr-09 30-Apr-12
01-Nov-08 New Zealand Unspecified Rolling 5 years

(a) Selected countries
(b) Announcement of scheme parameters typically followed the initial announcement date

Sources: BIS; central banks; debt management offices and guarantee administrators; treasury departments (Schwartz, 2010)

3.0 Discussion on Main Features
In this section, the features of Deposit Guarantee Scheme and Wholesale Funding Guarantee of both Australia and New Zealand (NZ) will be discussed, analyzed and contrasted.
3.1 Deposit Guarantee Scheme In Australia, under the Australian Government Guarantee Scheme for Large Deposits, there are two main aspects covered which are the Financial Claims Scheme (FCS) and Guarantee Scheme (GS).FCS states that deposits of $1 million of eligible ADI’s are automatically guaranteed by the Government, with no fee payable (Schwartz, 2010). Under GS, eligible ADI’s for a fee obtain a government guarantee on deposits greater than $1 million (Schwartz, 2010). On the other hand, in NZ, the Crown Retail Deposit Guarantee encompasses the DGS.

3.1.2 Features of Deposit Guarantee Scheme in Australia and New Zealand
1. Per institution limit Most schemes impose a per-institution limit on how much each participant can issue under guarantee. The limit tends to be based on either the outstanding amount of debt set to mature by a certain date, some measure of the participating institution’s liabilities or minimum issue size (Panetta et al., 2009).

In Australia, under FCS, the threshold of AUD$1 Million applies per depositor per institution. Hence, separate deposit accounts held by a depositor at an institution will be aggregated for the purpose of the threshold. Accounts held at separate institutions will not be aggregated for the purpose of the threshold (Goodman, 2009). This is also similar in NZ.

2. Eligible Institutions

In Australia, under FCS and GS, only eligible ADI’s are included which are Australian owned banks, Australian incorporated subsidiaries of foreign banks, branches of foreign banks (some restrictions), building societies, credit unions and other ADI’s. A list of eligible ADI’s can be seen in Appendix II. These ADI’S are appropriate as it is subjected to prudential regulation by the Australian Prudential Regulation Authority (APRA) in accordance with International standards (Goodman, 2009) .

In New Zealand, the eligible institutions are NZ-registered banks including unincorporated New Zealand branches of overseas banks; non-bank deposit-taking entities (including building societies, credit unions and deposit-taking finance companies) who are fully acquiescent with the requirements of their trust deeds; and Collective investment schemes [CIS] ( Portfolio Investment Entities [PIEs], super schemes, managed funds and unit trusts are subclasses) that invest solely in the debt securities of the NZ government or institutions subject to a government guarantee (New Zealand Treasury, 2008). A list of approved institutions can be referred to Appendix III.

3. Deposits covered

The guarantee will not pertain to products offered by non-ADI entities, including non-ADI subsidiaries of Australian ADI’s as these entities are not subject to Australian Prudential Regulation Authority (APRA) (Goodman, 2009) . Market linked investments products such as share portfolios and managed funds including mortgage trusts, property trusts and debentures are not covered. In addition, retirement income products including annuities are also not covered (Goodman, 2009). This also similar in NZ, whereby the scheme covers the following deposits; NZ incorporated registered banks (which includes incorporated branches of overseas banks), including deposits from both residents or non-residents; unincorporated branches of overseas banks, non-residents deposits as at 12 October 2008 , to reduce the likelihood that these depositors will leave these branches for guarantee covered institutions; For non-bank deposit takers, deposits of NZ citizens and NZ tax residents will be covered. (New Zealand Treasury, 2008).

4. Fees

In Australia and NZ, the tiered fee schedules are based on issuers’ credit ratings (Panetta et al., 2009).

Fees will be set at a single rate for all maturities for eligible securities up to 60 months, with a different rate applying to eligible ADI’s based on their credit rating under GS in Australia. The fee scale, on a per annum rate, is outlined in Table 2.

Credit Rating Debt Issues Up to 60 Months
AA 70bp
A 100bp
BBB+ and Unrated 150bp

Table 2: Current Guarantee Scheme Pricing (Goodman, 2009)

In New Zealand, for covered liabilities in excess of $5 billion a fee of 10 basis points per annum will be charged for the guarantee. The fee will be charged on the basis of the total covered liabilities, in excess of $5 billion of the institution. For non-rated non-bank deposit takers, a fee of 300 basis points per annum will be charged monthly on growth in the deposit book (New Zealand Treasury, 2008).

5. Currency

In both Australia and NZ, deposit liabilities will be covered regardless of the currency in which they are denominated in both the countries.

3.2 Wholesale Funding Scheme

The Wholesale funding scheme was implemented in Australia whereas in NZ, the Wholesale Funding Guarantee Facility was executed.

3.2.1 Features of Wholesale Funding Guarantees

1. Eligible Institutions

Eligible institutions are consistent with DGS institutions in both the countries. However, terms wholesale funding liabilities of ADI foreign (non Australian) bank branches are not covered.

2. Eligible instruments

As for eligible instruments, the focus is on newly issued senior unsecured debt in both the countries. In Australia, the instrument should be non-complex with maturities up to 15 months and they are bank bills, certificates of deposit, transferable deposits, debentures or commercial paper similar in countries such as Canada, Netherlands and United Kingdom (Panetta et al., 2009). Term funding liabilities of between 15 to 60 months are also eligible to be covered but the instrument must be a bond, note or debenture and it must also be “non complex” (Goodman, 2009). In addition applications can also be made for issuance programs to be covered. In New Zealand, no instruments that are covered under the deposit guarantee scheme will be covered under the wholesale facility.

3. Currencies Covered

In Australia and New Zealand, the facility will apply to debt issuance in all major currencies. It will apply to eligible securities issued domestically or off-shore in Australia (Goodman, 2009).
In NZ, including domestic issuance should enable managed funds and other similar entities, over time, to transfer most of their claims on NZ registered banks into instruments that are eligible for coverage under a wholesale facility (New Zealand Treasury, 2008).

4. Fees

The fees in Australia for WFG are similar to DGS. In New Zealand, a guarantee fee would be charged for each issue, differentiated by the riskiness of the issuer and the term of the security being guaranteed, as follows:

Credit Rating of Issuer Fee (bps per annum) Term at time of issue 1 year or less More than 1 year
AA- and above 85 140
A- to A+ 145 200
BBB- to BBB+ 195 250

Table 3: New Zealand’s fee pricing (New Zealand Treasury, 2008)

5. Maturity

Any paper carrying the wholesale guarantee would be covered to maturity or for up to five years from the time it is issued, whichever is the earliest. The five year rolling term is longer than the fixed two year term on the retail deposit guarantee scheme. This reflects two considerations. First, most retail deposits are for terms less than two years. Second, it is important that wholesale funding is spread out over a range of maturities to avoid the risk of concentrated rollovers, with associated macroeconomic risks, at some point in the future (Committee, 2009).

4.0 Summary and Conclusion In conclusion, the deposit guarantee schemes and wholesale guarantee schemes were introduced by both Australia and New Zealand as a measure to contest the global financial crisis. The stated intentions of both countries were similar, but their enacted guarantee schemes had differences, despite the same four major banks dominating both markets (Committee, 2009).

These schemes were introduced to promote financial system stability in Australia and New Zealand, and the ongoing provision of credit, by supporting confidence and assisting ADI’s to access funding at reasonable cost at a time of considerable turbulence. They also enhance the attractiveness of financial institutions of both the countries as borrowers in the already dislocated international financial markets, and mitigate any impact on their liquidity and lending activity (Schwartz, 2010).

Major differences between both the schemes was that in New Zealand it was “opt-in” rather than compulsory, by allowing participation from a from a wider range of financial institutions, and by imposing more risk-sensitive pricing. Both governments also introduced unlimited wholesale bank debt funding guarantee schemes available for new borrowings. These schemes were intended to last until conditions normalized and to cover senior unsecured debt instruments with maturities up to 60 months. Both schemes charged risk based fees with the New Zealand charges being generally higher and more risk sensitive (Committee, 2009). Other main differences and similarities can be seen in Table 4.

Features Deposit Guarantee Scheme (DGS) Wholesale Funding Guarantees (WFG) AUS NZ AUS NZ
Per Institution Limit Per depositor per institution Per depositor per institution - -
Eligible Institutions -Australian owned banks
-subsidiaries of foreign banks
-branches of foreign banks
-building societies
-credit unions -NZ registered banks
-branches of foreign banks
- building societies
-credit unions
-deposit-taking finance companies
-Collective Investment Scheme (CIS) Similar to DGS
(non Australian banks not covered) Similar to DGS
Deposits covered/
Eligible Instruments Cover products by ADI entities Cover products by ADI entities -Senior unsecured debt
-Non-complex Senior unsecured debt
Fees Tiered fee schedules are based on issuers’ credit ratings Tiered fee schedules are based on issuers’ credit ratings Similar to DGS Similar to DGS
Currency All All All All
Maturity Up to 60 months Up to 60 months -…...

Similar Documents

Premium Essay

Global Financial Crisis

...GLOBAL FINANCIAL CRISIS The Global Financial Crisis is considered to be the worst financial crisis to hit the global economy since the Great Depression. Around the world, stock markets fell, financial institutes collapsed or were bought out, banks stopped business with each other and governments had to bail out their banks and financial institutions. This in turn caused lots of unemployment and collapse of the real estate market, contributing to failure of businesses and industries, decline in consumer wealth and a decline in economic activity leading to the Global Recession. The Financial Crisis may have showed some traces in 2007 but it really hit on 15th September 2008 when the United States Government allowed Lehman Brothers to go bankrupt, resulting in all banks deemed to be risky. The immediate cause of the crisis was the bursting of the United States housing bubble which had peaked in 2006.By September 2008, housing prices in the United States began to decline after hitting their peak in 2006.Easy credit and a belief that house prices would continue to appreciate had encouraged many subprime borrowers to obtain adjustable rate mortgages. These mortgages enticed borrowers with a below market interest rate for some time, followed by market interest rates for the remainder of the mortgage’s term. Borrowers who could not make higher payments once the initial grace period ended tried to refinance their mortgages. Refinancing became more difficult, once......

Words: 1610 - Pages: 7

Premium Essay

Global Financial Crisis

...Global Financial Crisis: impacts, solutions and predictions in GCC countries. Since the end of 2007 and the beginning of 2008, the world has been suffering from the global financial crisis. It is believed to be the worst financial crisis in 60 years at least since the Great Depression in 1930s, due to the speed, scope, and scale of its impact. The huge difference distinguishes the contemporary crisis from the others is that the other crises were concerned with economic inflation and the current one is concerned with economic deflation. The global financial crisis has started in America, then crossed the Atlantic before going global. It began in the mortgage markets of the United States and erupted through financial markets (Savona, Kirton, Oldani 3). Many factors have contributed to the economy's recession, where signs of housing bubble problem were seen at the end of 2007. Caused by low interest rates beginning on January 3, 2001, and ignored by regulatory agencies, Americans borrowed excessively for home mortgages and this phase lasted to 2004. After that, from June 30, 2004, interest rates started to rise which led to the mortgage being unbearable and eventually subprime. This phase was marked by the increasing foreclosures and it extended from 2005 to 2007. This lead us to the conclusion that global financial crisis occurred due to easy monetary policies along with tax cuts and to failure of regulatory arrangements (Desai 1-3). This was the origin of the global......

Words: 2243 - Pages: 9

Free Essay

Fundamental Analysis During Financial Crisis

...Was fundamental analysis redundant in the period during the Global Financial Crisis (GFC)? 3/21/2014 ABC Was fundamental analysis redundant in the period during the Global Financial Crisis (GFC)? Fundamental analysis is the process of evaluating the value of any security and certificate by analyzing the real time factors, which are based on qualitative and quantitative factors. Economic and the social factors also effect while you are finding out the intrinsic value of any security or asset. Fundamental analysis when made for evaluating the value of security all the factors that can affect the security considered like macroeconomic factors, microeconomic factors and the company based factors. Not only have the external factors about the internal factors also affected the value of any asset (Bedford, 2008). You need to consider in fundamental analysis: * Market analysis * Company analysis * Industry analysis For an investor the fundamental analysis is very important to invest in any asset or security. The investor when found the intrinsic value of security with its current value than this make easy for them to invest or not. Global financial crises are the period, which is experienced by the society, and the marketers, a situation of great difficulty in the world where nothing is stable in any state of the world. The economic situation in the global crises become worst and the purchase power of the customer reduces, and this is a difficult time for the...

Words: 1859 - Pages: 8

Premium Essay

Global Financial Crisis

...Positive and Negative Effects of the Global Financial Crisis Harlita H. Tomlinson Capella University BMGT8114: Accounting in the Global Era Dr. Wendy Achilles June 8,2014 Table of Contents Abstract 3 Positive and Negative Effects of the Global Financial Crisis 4 Background on the Global Financial Crisis 5 Global Financial Crisis and Its Negative Effects 9 Lack of Financial Sector Regulation and Oversights 9 Increase in the Number of Bankruptcies 11 Global Financial Crisis and Its Positive Effects 12 Designing Regulations to Monitor the Financial Sector 12 Global Governance as a Side Effect of the Global Financial Crisis 13 Lessons Learned 16 Domestic Lessons Learned 16 Global Lessons Learned 17 Lessons from Romania. 18 The Role of Financial Executives in GFC 19 Conclusions 21 References 24 Abstract The first financial crisis of the twenty-first century has not yet ended, according to Gorton and Metrick (2012), the wave of research on the crisis has already exceeded any single reader’s capacity, with the pace of new work only making this task harder. The Global Financial Crisis is considered by many economists to be the worst financial crisis since the Great Depression. Global Financial Crisis resulted in the threat of the total collapse of large financial institutions, the bailout of banks by national governments, and market downturns around the world. In the aftermath of this crisis, the housing market declined significantly and has......

Words: 6647 - Pages: 27

Free Essay

Global Financial Crisis

...projected liquidity needs with projected available liquidity (from both asset and liability sources) for each time period. “This approach is superior to focusing on one or the other parts of the liquidity problem because it evaluates liquidity relative to bank needs” (Gup et al., 2007, p.356). APRA is proposing that banks in Australia hold more liquidity in the event of future crisis. The reason for this is “APRA noted that the financial crisis exposed the limitations of existing liquidity reporting rules when markets are under severe stress” (Baltazar, 2009, para.8). APRA (2009) said the financial crisis has highlighted the need for ADIs to have adequate levels of liquidity and robust liquidity risk management systems, and has provided considerable insights into better practice in this area. APRA supports the Basel Committee’s measures and agrees that greater international consistency in prudential regulation, promoted by the Leaders of the G20, will strengthen Australia’s prudential framework. Securitization is the process of taking an illiquid asset, or group of assets, and through financial engineering, transforming them into a security. It is an important source of liquidity for banks. A typical example of securitization is a mortgage backed security (MBS), which is a type of asset backed security that is secured by a collection of mortgages (“Investopedia,”2010). The securitization process involves a number of participants. In the first instance is the......

Words: 2362 - Pages: 10

Free Essay

Ustralian and New Zealand Schemes During Global Financial Crisis

...Introduction The global financial crisis of 2007 transmitted shock waves worldwide urging international governments to prepare defensive measures to combat this economic turmoil. Hence, on 12th October 2008, the Australian and New Zealand governments introduced analogous schemes to guarantee liabilities issued by a wide range of financial institutions whereby prior to this phenomenon, neither nation had deposit insurance arrangements in place, a distinctive characteristic common in other developed nations. The Australian Government introduced a blanket guarantee on deposits namely the Australian Government Guarantee Scheme for Large Deposits and Wholesale Funding until October 2011. Consequently, it was cultured to a scheme in which the first AUD$ 1 million was to be guaranteed free of charge, with larger and foreign branch deposits able to be insured for a fee (Committee, 2009). The Crown Retail Deposit Guarantee Scheme and Wholesale Funding Guarantee Facility were implemented at the same time in New Zealand. The initial coverage was NZ$1 million per deposit-holder per institution, but this was reduced to NZ$500,000 for bank deposits and NZ$250,000 for non-bank deposits in September 2009 when the scheme was extended to the end of 2011 (Committee, 2009). Both governments also introduced unlimited wholesale bank debt funding guarantee schemes available for new borrowings; Whole Funding Scheme and Crown Wholesale Guarantee Scheme respectively in Australia and New......

Words: 303 - Pages: 2

Premium Essay

Learn from Employment Policies During the Global Financial Crisis in Oecd Countries

...Essay Learn from employment policies during the global financial crisis in OECD countries Writing by Arthur DAGAN a. What has been the main impact of the global financial crisis on OECD countries? Why should governments be concerned about the impact, especially in the context of youth? Let us first understand the cause of global financial crisis, his main impact on OECD and then why governments should be concerned about the especially case of youth. The global financial and economic crisis, which erupted in the financial systems of developed countries in the autumn of 2008 by the wake of the collapse of Lehman Brothers, has affected quickly all economies throughout the world (Torres, 2011). In the OECD countries, which are the first affected by the crisis, the main impact was the high level of unemployment generate by job losses, enterprise bankruptcies and cuts in the incomes of millions of people. Indeed, in April 2013, 8% of the OECD labour force was unemployed representing over 48 million people, almost 16 million more than in 2007 (Scarpetta, 2013). Despite the economic recovery in some of OECD countries mainly the United States, this trend could not improve until mid- 2014 so that we can observe a decrease in unemployment again. The governments should be concerned about the impact the unemployment because in general, this phenomenon affect not just the person himself but also his/her family and in the long run the society where he lives, which in turn......

Words: 1281 - Pages: 6

Free Essay

Neoliberalism and the Global Financial Crisis

...Neoliberalism and the global financial Crisis Introduction The fusion of neoliberal beliefs and the western society started in the early 1970’s, it has incorporated in the society to such an extent that it can be portrayed as being impending. For more than forty years now neoliberalism has controlled governments, technology, housing and financial sector and has impacted our society in destructive ways. Neoliberalism reached a new height after the 2008 financial crisis leaving recession as an aftermath. Neoliberalism as explained by Harvey (2005) is a model of private enterprise which concentrates on the economy and its deregulation to empower a free market based monetary framework. Hillyard and Tombs (2004) see neoliberalism as a destruction breeding form of capitalism which they think makes a commanding dispute for, the state demanding to be considered in charge of methodically creating destruction. Neoliberalism as indicated by David Harvey is a "hypothesis of political monetary works on recommending that human prosperity can best be progressed by the augmentation of entrepreneurial opportunities inside of an institutional system portrayed by private property rights, individual freedom, unhampered markets, and free trade" (2005:2). The idea of neoliberalism in western social orders is connected with the Thatcher government in the UK and the Reagan government in the US which came to power in the late 1970s – mid 1980s henceforth presenting neoliberalism as a key......

Words: 3663 - Pages: 15

Free Essay

Global Financial Crisis and the Eu

...required to develop an essay addressing the issues described in the following statement: ‘Geopolitical crises and epidemics haven’t stopped the global economy from expanding by some 3 percent in 2014. However, the Eurozone will remain the world economy’s main problem, with growth in the single-currency bloc expected to be negligible. Problems in some of the Eurozone’s big economies are worrying analysts. The situation in Italy, for instance, is quite dramatic, with the economy stagnating. In France, high public deficits are a big worry; such a policy could not be continued for much longer. Underperforming fellow Eurozone nations could affect Germany’s own economic growth prospects, since they are the customers for most of Germany’s exports; it is expected that Germany’s gross domestic product will expand by just 1 percent in 2015. Despite the evident problems in Eurozone, Germany and France are determined to restore a confidence to the Euro.’ Discuss the statement, and use examples to justify your opinion. 1.0 Introduction The Global Financial Crisis or the ‘great recession’ as it is now known has been widely regarded as the worst global recession since the end of the Great Depression (Drezner, 2014). The events following the collapse of the US housing market and the subsequent financial meltdown has had consequences on a global scale, nowhere is this more evident than in the Eurozone (Allen & Ngai, 2012). The Eurozone, made up of 19 EU member states that......

Words: 5853 - Pages: 24

Premium Essay

Impact of Global Financial Crisis on Novotel

...and beverage sector within Novotel Hotels in the Sydney Metropolitan area and the challenges it faces is important, in this selected case study it not only is effected by the Hospitality industry but also the tourism industry as well. Both these industries have felt hard and negative impacts from the global financial crisis and have definitely had an impact on our case study. This business research report identifies the need to evaluate the relationship between a decline in international tourist, the change in food and dining trends and the revenue of Novotel in the Metropolitan area. The research follows the deductive research method. For the purpose of this report the hypothesis is Novotel food and beverage sector in Sydney metropolitan areas is making a loss and losing customers because of the global financial crisis. The research was conducted through a mixture of qualitative and quantitative research methods including; the report samples the primary research methods such as sample questionnaires, observational research and interviews. The secondary research methods mainly included personal communication and researching the hospitality databases, tourism and Australian Bureau of Statistics Website. Table of Contents Executive Summary 1. Research Questions 4 2. Literature Review 5 3. Conceptual Framework 7 4. Methodology and Research Instruments 9 4.1 Research Methods 11 4.1.1 Sample Questionnaire – Qualitative Research Method......

Words: 2949 - Pages: 12

Premium Essay

The Global Financial Crisis

...The Global Financial Crisis: Impact on Bangladesh A.K.M. Atiqur Rahman Professor Department of Economics North South University Overview I. Introduction: Genesis and Spread of the Crisis. II. Global Recession and LDCs III. Impact on Bangladesh IV. Recession and Export from Bangladesh V. Exchange Rate Movement VI. Remittance VII. Import and Tax Revenue VIII. Overall Impact IX. Policy Implications I. Introduction: Genesis and Spread of the Crisis. • Root: Mispricing in the Massive Credit Default Swap Market • Sub prime Mortgage: Bank transferred credit risk to third party through the process of securitization ( MDS, CDO) • Reckless growth of sub prime mortgage-lower yield in risky mortgage • Arbitrage drove the yields on all bonds & loans down • Expansion of consumer credit, housing price bubble Intriduction continued • Unsustainability of Credit default swap and subprime mortgages exposed • Housing bubble burst → mortgage default → foreclosures→ bank and insurance failure→ credit freeze • Spillover of financial crisis to real economy through virulent credit crunch →depressed aggregate demand • Sub prime mortgage default led to spillover effects around the world (Europe and emerging economies) via an elaborate network of derivatives Continued . Global consequence of the crisis includes: • Sharp rise in Unemployment in the US, Job loss in few other countries • Sharp fall in the stock market price around the globe,......

Words: 2083 - Pages: 9

Premium Essay

Global Financial Crisis

...Global Financial Crisis: The 2007–2012 global financial crisis, also known as the Global Financial Crisis (GFC), late-2000s financial crisis or the second "Great Recession", is considered by many economists to be the worst financial crisis since the Great Depression of the 1930s.[1] It resulted in the collapse of large financial institutions, the bailout of banks by national governments and downturns in stock markets around the world. In many areas, the housing market also suffered, resulting in numerous evictions, foreclosures and prolonged unemployment. It contributed to the failure of key businesses, declines in consumer wealth estimated in trillions of US dollars, and a significant decline in economic activity, leading to a severeglobal economic recession in 2008.[2] The financial crisis was triggered by a complex interplay of valuation and liquidity problems in the United States banking system in 2008.[3][4] The bursting of the U.S. housing bubble, which peaked in 2007, caused the values of securities tied to U.S. real estate pricing to plummet, damaging financial institutions globally.[5][6] Questions regarding bank solvency, declines in credit availability and damaged investor confidence had an impact on global stock markets, where securities suffered large losses during 2008 and early 2009. Economies worldwide slowed during this period, as credit tightened and international trade declined.[7] Governments and central banks responded with unprecedented fiscal stimulus...

Words: 12476 - Pages: 50

Free Essay

Global Financial Crisis

... Mitch Abramson GOVT 123-01 Global Financial Crisis A collapse of the US sub-prime mortgage market and the bursting of the housing bubble in 2007 have had a ripple effect on the global economy. Furthermore, other weaknesses in the global financial system have surfaced. Some financial products and instruments have become so complex and twisted, that as things start to unravel, trust in the whole system started to fail. In turn lack of confidence in the economy has led to what is commonly referred to as the “great recession”. The question left to ask is, where do we go from here? The public is looking for an answer from economists to what will happen next. Because of the lack of certainty in the global forecasts, people are starting to lose confidence in the system. For example, in November 2008, the World Bank predicted the growth of the 2009 GDP to be 0.9%, while the International Monetary Fund predicted a 2.2% growth rate. In January 2009, the IMF revised its forecast to a 0.5% growth rate; two months later, the IMF revised its growth rate again by raising its forecast to 1%. Federal Reserve chairman, Ben Bernanke put it plainly in a speech given to the House Budget Committee by saying, “The uncertainty surrounding the outlook is unusually large.” Some economists have resorted to using three letters of the Roman alphabet to represent the future of the GDP growth. Those scenarios are the “U”, the “L”, and the “W” recovery. In a “U” style economy, economic growth will......

Words: 892 - Pages: 4

Premium Essay

Global Financial Crisis

...Introduction Global financial crisis started when sub prime mortgage market of United States collapsed. Since the global financial crisis took place, many developed and developing countries have been going through recession. It was believed that ongoing global financial crisis will not affect Bangladesh economy as badly as it can to other developed economy because economy of Bangladesh is not so dependent on international capital or foreign investment. But, still there are and will be some shocks of ongoing global financial crisis available for Bangladesh economy. So, Bangladesh economy will be affected by global financial crisis. Global financial crisis might reduce overseas job opportunities and export earnings. Global financial crisis may turn into a recession. Economy of developing countries including Bangladesh is already going through recession. Bangladesh is a low income country. If global financial crisis continuous then economy of Bangladesh will be suffering. Negative impacts of global financial crisis are beginning to show on the increasingly globalizing economy of Bangladesh. Export growth rate of Bangladesh has turned negative. Export of non-apparels items is being reduced. Depreciation of currencies by competing countries caused erosion of Bangladesh’s competitive strength in the global market. Remittance earnings could be badly affected in near future because number of job seekers going abroad halved as some countries either revoked or have stopped issuing......

Words: 1547 - Pages: 7

Premium Essay

Global Financial Crisis

...EC-408E-INTL ECONOMICS-A-12/S3 DR. HAMID ZANGENEH The Global Financial Crisis & LIBOR London Interbank Offered Rate One Of The Largest Banking Scandals In History, An Emerging Controversy Over Whether Major Financial Institutions Have Been Manipulating The LIBOR, A Key Interest Rate Banks Use To Borrow Money From Each Other That Is ”Used As A Benchmark To Set Payments On About $800 Trillion Worth Of Financial Instruments.” MIT Professor Of Finance Andrew Lo Told CNN Money That The LIBOR-Manipulation Story “Dwarfs By Orders Of Magnitude Any Financial Scams In The History Of Markets” Anthony Bruno 7/21/2012 Abstract Following investigations into Barclays' manipulation of London Interbank Offered Rates (Libor), CFR's Sebastian Mallaby highlights three implications from the unfolding scandal: Conflicts of Interest Within Banks: Barclays' distorted reports on borrowing rates demonstrate the system's failure to prevent damage from conflicts of interest between banks and their traders. "Chinese walls don't work," Mallaby says. "It's a lesson we've learned over and over again in finance." The Role of Regulators: The alleged collusion between the Bank of England and Barclays indicates a critical challenge in the governance of financial markets: Regulators are forced to bend rules to protect banks, "not because they are bribed," says Mallaby, "but because they are blackmailed, in the sense that the banks, by threatening to go under and do untold damage to...

Words: 4736 - Pages: 19