Global Financial Crisis and the Essay

Download this Essay in word format (.doc)

Note: Sample below may appear distorted but all corresponding word document files contain proper formatting

Excerpt from Essay:

This makes the affiliates banks achieve the same status of the subsidiary banks because the latter will be least affected in relation to the turmoil. If the crisis was hard on their parent banks, then the affiliates banks would have required to stand on their own. The domestic banks in contrast could receive financial bails during the financial crisis hence offsetting the difference that existed between them and subsidiary of the foreign banks (Mihaljek, 2011, p.44). During the global financial crisis, both the local and the foreign owned banks had to reduce their profit target hence, the diminishing factor of whether one is an affiliate or the other is a subsidiary. Therefore, the financial crisis affected all the banks independent of whether they were subsidiary or affiliates.

3. What are the strengths and weaknesses of the capital positions of Australian

and German banks in the wake of the GFC?

The establishment of the pillar policy in the management of the banking system contributes as the major strength during the financial crisis. While the Australian had the four-pillar policy, the German had the three-pillar policy. Each of these pillars, in the two countries, constituted the other small cooperative banks hence making the larger categories to have more share of the total bank assets in such countries (IMF 2011, p.5). Therefore, this implies that the control of the country's assets under the pillar policy which in turn has ensured securitization. The merge into the main pillars also gave an outward expression of too large to fail. The pillars also made the countries be in a position to receive foreign lending because of the potential collateral they had. This is indifferent if the countries could have just been made up of the fragmented small banks, which could lead to least securitization especially during the financial crisis.

In Germany especially, the cooperative sector, was in a better position to solve all the problems arising from the financial crisis hence lessening the effect of the financial crisis on the public. This is because cooperate pillar was able to finance all the problems independent of the public money. The smaller banks could not have dealt with this situation because of their weaker nature in relation to their financial position. Australia, on another hand, also had most of its assets being controlled by the four main banks, making the regulation of the financial crisis be easier because of the cooperation of banks at the pillar level.

The control of these countries' assets by the larger banks has also contributed to their weakness in relation to the financial crisis. For instance, the meeting of the new Basel III requirement could pose a challenge to the German and the Australian banks. This is because the larger banks did not rely on the equity capital that is the provision of the Basel III in relation to the international competition (IMF 2011, p.10). The requirement provided that the banks must have sufficient sources of funding. This leads to the scenario of stress test in these countries, which shows that these larger banks were facing challenges during the financial crisis. Generally, the Basel III always put more pressure on the high leveraged institution in relation to the market funding (Davis, 2011, p.303).

4. What are some of the similarities and differences in patterns of bank funding in Australia and emerging market countries, before and after the GFC?

Before the GFC

The issue of too big to fail, an attribute of the four-pillar policy made the Australian banks be different to the other emerging economies' (Kyoon & Sheridan 2012, p.3). The government provided the banks with funding because their failure would have heavily affected the economy of the Australian country. This is indifferent with the funding in the emerging economies where the small banks do not have much effect on the economy. The fragmented form of the banking system has made the emerging market economies have a different funding from Australian system (Kyoon & Sheridan 2012, p.3). While most of the emerging market countries heavily relied on the foreign sources to expand their credit, the establishment of the four-pillar policy made Australia reduce its reliance on the equity capital. The four pillar policy made the country to majorly rely on their cooperate funding, making them more successful than the other countries.

After the GFC

In their funding, the Australian banks adopted the 20% loss given default (LGD) for all the residential mortgages that are above the Basel floor of most of the emerging markets (Kyoon & Sheridan 2012, p.4). The emerging market had their Basel floor reading 10%. The Basel II helped in determining the LGD of a country in relation to their mortgage lending. Because of the higher Basel II in Australia, they LGD rates higher than the other emerging markets. The conservative lending ratio of the banking system in Australia has also contributed to the difference in the funding system. This has led to the low performance of the loan ratio compared to other emerging economies that have high loan performing ratio (Kyoon & Sheridan 2012, p.5). The banking system of Australia also uses the conservative eligibility of capital that makes them have high quality capital in relation to the other economies.


Kyoon, B. & Sheridan, N. 2012. International Monetary Fund: Bank Capital Adequacy in Australia. WP/12/25,

Bordo, M., Redish, a., Rockoff, H., 2011. Why Didn't Canada Have a Banking Crisis in 2008 (or in 1930, or 1907, or ...)? Working Paper 17312

Mihaljek, D. 2011. Domestic Bank Intermediation in Emerging Market Economies During the Crisis: Locally Owned vs. Foreign-Owned Banks. BIS Papers No 54

International Monetary Fund, 2011.…[continue]

Cite This Essay:

"Global Financial Crisis And The" (2012, April 25) Retrieved October 24, 2016, from

"Global Financial Crisis And The" 25 April 2012. Web.24 October. 2016. <>

"Global Financial Crisis And The", 25 April 2012, Accessed.24 October. 2016,

Other Documents Pertaining To This Topic

  • Global Financial Crisis GFC the Present Global

    Global financial Crisis (GFC) The present Global Financial Crisis (GFC) has been considered by the financial experts and economists as the worst financial crisis apart from 1930s Great Depression. The GFC led to the collapse of large financial institutions and downturns of the major stock markets globally. The crisis led to the failure of several key businesses and s significant decline in the economic activities. The GFC started on the U.S.

  • Global Financial Crisis Since the Early 2008

    Global Financial Crisis Since the early 2008, financial institutions started to go through chaos all over the globe. The stock markets were beginning to crash, businesses were shutting down, and investors were losing their money. This was to indicate that the entire globe had been hit by a period of economic crisis leading to a large number of corporate collapses of banks, investment companies, multinational corporations, etc. This downfall of economic

  • Global Financial Crisis the Current

    Given that, they must take the steps necessary to ensure this health. This is a profound shift in priorities -- the banking sector was normally governed on the basis that the best outcome was increased profit-making opportunity. The Obama administration, with its predilection for increased regulation, realizes that the best outcome for the banking industry, its executives and its shareholders is not necessarily the best outcome for the nation

  • Global Financial Crisis An Examination of One

    Global Financial Crisis: An Examination of One Company's Performance Indicators The global financial crisis of the recent past has been the subject of much commentary, investigation, and debate from people around the globe and from all walks of life. Despite the fact that politicians and armchair policy makers have gone round after round in debates regarding the causes and the ultimate effects of this worldwide economic downturn, the real effects

  • Global Financial Crisis A Comparison

    The banks repackaged their risks "into complex financial products and sold these to other financial institutions. April 2007 witnessed the collapse of sub-prime lender New Century Financial and this collapse was only the first of many casualties. The British government nationalized the mortgage lender Northern Rock and soon afterwards Bear Stearns collapse due to subprime loans. Fannie Mae and Freddie Mac were nationalized in September 2008 because of the great

  • Organization Behavior Global Financial Crisis the Most

    Organization Behavior Global Financial Crisis The most recent financial crisis has badly affected the Global economy. Individuals, businesses, and Governments; every entity has taken its impacts in one way or another (Burger, Coelho, Karpowicz, & Tyson 2009). Since its arrival, financial crisis has posed big threats to the world markets. The countries are trying to overcome the bad impacts of this crisis but have failed to recover their positions due to severe

  • Qantas the Global Financial Crisis

    This is a poor use of the company's capital, since the global economy remains weak and since Qantas faces intense competition on numerous fronts. While increasing the debt component of the capital structure would lower the overall cost of capital, it would also increase the risk that the company faces. The operating environment is turbulent, not just from competition but from high fuel costs as well. This implies that

Read Full Essay
Copyright 2016 . All Rights Reserved