It has been more than a decade since the financial crisis shook the world, and the economy at the global stage is on a whole new level than it was back then. There was an expansion, with the flaw in the system showing itself for the first time during the time of 2007. There was a sudden bomb dropped, when the global financial services firm Lehman Brother collapsed in the month of September in 2008 and the world banking sector was dangling on the edge.
In the aftermath of the financial crisis, rules passed stated that banks in the United States of America have to hold on to more reserves against their credits. This indicates that they are more balanced and can take on any financial losses in the future. But less of prime borrowing rate, lower need for lending money and falling return on equity are all factors hampering the growth for banks in general.
Giving back on equity for banks, which is a standard of measurement used by lenders, has reduced by about fifty percent since the financial crisis. This might be positive news as the banks are reducing their vulnerability to danger. “But with all this capital, they’re still struggling to find profitable new business models.”
Increasing financial debt are risks that the financial markets cannot afford to take. Instead of the debt staying negligible or decreasing since the financial crisis, there has been an increase by “a whopping $72 trillion and its different borrowers this time.” Government establishments around the world like Greece are in huge debt while places like Turkey are going through the problem of crippling currency mainly because of a collective debt.
Currency like the cryptocurrency and the use of artificial intelligence that finalises trading methods and investment decisions on a personal level is something to look out for. There have already been problems because of artificial intelligence overlooking trading methods and bringing down its guard against cyberattacks. For example, hackers tried to rob millions of dollars from the Central Bank of Bangladesh by the means of SWIFT (Society for Worldwide Interbank Financial Telecommunications) which digitally connects all the banks on a world level.
A less associated market leads to more balance in the financial sector because if a market in any one country plunges, it will not a lot of effect on others. This basically means that banks are paying more attention on local markets and lending across two different sides is a bit less since the day of the financial crisis.
The only failure, is in the problem of not accepting the difficulties which are plaguing the system today. The financial sector which was solely responsible for the crisis, is still the same in every way possible. Banks in general may hold more capital and their benefits are linked to long term performances. But scandals bringing the banks under bad light, in issues such as money laundering, rate- fixing and selling by wrong means continue to come under the limelight.
Anyone who woke up from a slumber in the year 2006 and viewed the markets in today’s time would have no idea about the financial crisis. The interest evaluations paid by the governments and business conglomerates to ask for money is critically low even according to the standards in history.
The discussion about macroeconomic policy takes place in the same way it has been since its formulation. People who like to believe that governments can take a monetary obligation and spend even more are simply arguing with those who stand to believe that the debt is already too high. Those who are in favour of centralised bank policies to come back to what it was before (higher rates, no more purchases of government bonds) are still discussing with their counterparts who are certain that initial financial tightening will cause trouble to the already weak or fragile world economy.
There for the policymakers, another metaphor is perhaps more suitable. The Central banks brought a world economic heart attack to an end by performing a financial surgery. But the economy has gone back to its old routines of alcohol consumption, smoking cigarettes and stuffing itself with junk that may damage it internally. The economy at the world stage maybe looking healthy enough but the next attack to destroy it could be devastating and the procedures used a decade ago may not be of any help the second time.
Written by:
Ruchit Rastogi