Risks to the Global Capital Market Beware Essay

  • Length: 5 pages
  • Subject: Economics
  • Type: Essay
  • Paper: #35076876

Excerpt from Essay :

Risks to the Global Capital Market

"Beware the next financial blind spot." Summary

Gillian Tett's article exemplifies various issues and risks involving financing in and out of the bank. The world marketing systems and non-bank entities are taking shape because it happened during the managerial times of Mr. Paul Tucker. Tucker expresses the point of need for many financiers to understand and consider the effects brought by shadowy banks, most of which are referred to as "Russian doll finance," or "Vehicular finance." According to Tucker, these are the financial entities in the market, which are likely to cause systemic entries. When Tucker's comments are understood, Tett depicts the call for financial stability board to issue a financial report. This sought to look further on the issue of "oversight of the shadow banking world," as it had accrued a $67th assets.

According to the board, the financial regulators have taken too long before deliberating on this issue. It took a period of six years. If the board had taken early steps of curbing this form of financial banking, it would have managed to exist within the past policy mistakes and the future challenges which were yet to be faced by the banking system. This would provide a palatable platform from which progress can be registered. The core problem originates from what Tett has referred to as "silos." This problem occurs during the stages of making policies in the market. Tett reflects on history when bank and policy-making officials were expected to incorporate their instincts with peripheral vision and models of financing. With the issuance of independence to the BoE, there was a dominance of mental "silos" which was brought out due to the presence and persistence of high-skilled economists, monetary and macroeconomic policymaking, and many other economic activities. There was little influence into the financial envelopes as most financial service authorities took assumed responses in bank supervision. There came the issue of collateralized debt obligations. With this, the vehicular markets had no connection with a real economy in place. However, the economists bridged this mental gulf. For example, Mr. Tucker realized the operations of the CDOs and SIVs where diluting an effective flow of credit. This brought much analysis of the vehicular finance as it was made part of the monetary aggregates like that of M4.

There were several obstacles, which faced this activity. There was no clarity on who was responsible for analyzing the non-bank world. No one was given the responsibility to make policies. The presence of silo influence was very entrenching that it made everything fearful to say. The fears reiterated the need to have additional influence of the "non-bank financing in the market." Paul McCulley brought this issue to increased limelight when he reiterated the fact that "shadow banking" is a crucial entity in the market as it could be matched with the performance of CDOs and SIVs in the market. The policy and debate was nevertheless shifted by this. This led to an increase in the level of cry as Tucker called for additional silo-bursting measures. There is still looming presence of silo markets and mental blind spots in the market.

"Risks to the global capital markets," "Vehicular finance," the "summary," and "Annex: Vehicles" including "Diagram 1."

Why vehicular finance is also referred to as "Russian Doll finance."

Vehicular finance is also referred to as Russian doll finance. Vehicular finance is a protocol, which replicates its mental existence. It is a shadow in the making. Many corporate and financiers have not seen the sense and need to advocate for this form of finance. It has not established equitable financial growths and prospectus stability in the market. As supposed by Tucker, Russian doll finance seems not to exist. This is when it comes to its operations, financial analysis measures, and performance in the market. Tucker refers to it as "doll" since it just seems to exist in the mental perspective. The generation of the Russian doll finance strikes back to the birth of financial models and outplays which demonstrated how financial calculations could be done and manipulated to yield a performance, something that never came to be. As such, Tucker has taken the measure of "vehicular finance" as that of "Russian doll finance" in the world.

Different types of finance vehicular markets and why they are referred to as "shadow banking."

There are different types of finance vehicles. According to Tett, the CDOs and its operations just resembled those of the finance vehicles. Within the BoE, Tucker was expressive of the fact that these kinds of operations were turning out negatively to the general operations of the world financial operations. The CDOs replicated operations that looked to exist, but could not be limited to non-existence in the market. As such, they seemed to derail on the general operations of the credit flow in many banks. Incorporation of vehicular finances into the operations of the CDOs is a thing to reckon. For instance, if the financial market exists without the influence of the challenges and difficulties, it is bound not to grow. Nonetheless, it will look not to exist in the market

SIV operations are the other replicators of finance vehicles. SIV operations are a shadow in banking. The flow of credit in a bank is a physical matter. It has to be reflected by the number of daily operations registered in the market. Without this, then the market of financial operator is a "shadow" in the making. Moreover, the M4 monetary aggregates replicate part of "shadow finances" in the market. Nonetheless, this can be subjected to further analysis and discussion in order to arrive at a basic and numerical term for the finances.

The perceived operations of these two vehicles are not clear in the market. Many financial analysts have not gotten the innate operant measures, which can rank these finances together with those, which have made significance in the market as in Europe. As such, they are referred to as "shadow banking."

Global imbalances

In most cases, the global dominance and existence in the market is supposedly marked as to be in imbalance. Global imbalance is a huge risk to the global finance system. Global imbalance refers to a state where the financial operands and operations in the market seem to be in wider magnitudes of operation and success. With the coming in of "shadow banking" in the market, the present banking systems and operations will not stand the fierce competitive nature in the financial market. This leads to what is called variable financial market or variable banking models. When this exists in the market, the financial regularities and operations in the market will not stand the chance of stabilizing. When this occurs, banks and other financial firms will be put in a limbo. They will exist in some state of non-uniformity of operation in the global finance. As demonstrated by the Tucker, this state of non-financial universality is risky to the macro and micro sectors of the business world. The difference between the macro and micro economies will be a wide gap that cannot be catered for within single or even double financial remunerations. As such, global imbalance is likely to occur in such a case. With the occurrence of global imbalance, many between financial forces hailing from different parts of the world, the global market will not stand a chance of performing well to all the entrants. This risk is rampant and still exists in the, market. The duality of competition and regular changes in the global market has necessitated this risk to be dominant in the market.

Low risk premia

Low-risk premia is a connotation, which the author has used in the article to show the level of performance and risks that many corporate and financial operators in the global market. Low risk…

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