ppt on banking crisis-kritika
Post on 08-Aug-2018
222 Views
Preview:
TRANSCRIPT
-
8/22/2019 PPT on Banking Crisis-Kritika
1/35
Banking Crisis International
Banking
Submitted By:
Ankit Arora (212)
Ashish Agarwal (217)
Dolly Kotak (227)
Kritika Jain (239)
-
8/22/2019 PPT on Banking Crisis-Kritika
2/35
Agenda
Introduction
Japanese asset price bubble
Cyprus Crisis
Spanish Financial Crisis
How to Avoid Banking Crisis
-
8/22/2019 PPT on Banking Crisis-Kritika
3/35
Agenda
Introduction
Japanese asset price bubble
Cyprus Crisis
Spanish Financial Crisis
How to Avoid Banking Crisis
-
8/22/2019 PPT on Banking Crisis-Kritika
4/35
Introduction
Banking crisis includeBank runs
Banking panics and
Systemic banking crisis.
Marked by bank runs that lead to the demise of
financial institutions, or
by the demise of a financial institution
that starts a string of similar demises.
-
8/22/2019 PPT on Banking Crisis-Kritika
5/35
Agenda
Introduction
Japanese asset price bubble
Cyprus Crisis
Spanish Financial Crisis
How to Avoid Banking Crisis
-
8/22/2019 PPT on Banking Crisis-Kritika
6/35
Japanese asset price bubble
What?
Why?
Effects ?
-
8/22/2019 PPT on Banking Crisis-Kritika
7/35
Economic bubble from 1986 to 1991.
Indicated that both financial andmacroeconomic instability are closely relatedto large fluctuations in asset prices.
Japanese Asset Price Bubble
-
8/22/2019 PPT on Banking Crisis-Kritika
8/35
Japanese Asset Price Bubble
-
8/22/2019 PPT on Banking Crisis-Kritika
9/35
What?
Substantial increase in asset prices
Overheating of economic activity
Increase in money supply and credit
Intensified Bullish Expectations
Financial deregulation in progress
Inadequate risk management on the part
of financial institutions Taxation and regulations biased toward
accelerating the rise in land prices
Aggressive bank behavior
Why?
-
8/22/2019 PPT on Banking Crisis-Kritika
10/35
Effects?
The subsequent collapse of the bubble lasted for
more than a decade and contributed to the so-called Lost Decade(1991 to 2000).
Slowdown in growth
Diminishing global role
Recession and natural disaster (low IndustrialProduction)
Quality of life remained high
Discouraging employment trends
Chronic fiscal deficits since the mid-1990s
-
8/22/2019 PPT on Banking Crisis-Kritika
11/35
Agenda
Introduction
Japanese asset price bubble
Cyprus Crisis
Spanish Financial Crisis
How to Avoid Banking Crisis
-
8/22/2019 PPT on Banking Crisis-Kritika
12/35
Cyprus is a self-professed offshore banking haven.
Cyprus has a political and cultural affinity with
Greece, the two countries and their economies areclosely related. Therefore, when Greece entered amajor economic slump, Cyprus also suffered.
When Greece partially defaulted on its sovereign
debts last year. Cypruss two biggest banks, theBank of Cyprus and Laiki Bank, held large amountsof Greek government debt and took a major hit inthe partial default
Cyprus Crisis
-
8/22/2019 PPT on Banking Crisis-Kritika
13/35
Cyprus is a popular place for cash-rich Russian investors tohold offshore deposits.
25 and 40 per cent of all cash in Cypruss banks is held by aRussian account holders.
When the Cypriot economy began to slide, it first went toRussia for financial assistance. It received a loan of 2.5billion in early 2012.
Cyprus asked for a bailout from the EU and IMF in summer2012.
Eurozone finalised a bailout deal where Cyprus wouldreceive 10 billion in Troika loans, as long as it came up with7.2 billion itself.
Cyprus Crisis
-
8/22/2019 PPT on Banking Crisis-Kritika
14/35
INTRODUCTION OF HAIRCUTS
-
8/22/2019 PPT on Banking Crisis-Kritika
15/35
It was proposed to raise this amount by taking moneyfrom depositors. The idea was that accounts withbalances over 100,000 would be hit with a levy of9.9 per cent. The account holder would be givenshares in the bank in exchange.
Accounts under 100,000 would also be hit with a levyof 6.75 per cent.
It Initiated BANK RUN. Bank remain closed for 10 days.
Cyprus Crisis
-
8/22/2019 PPT on Banking Crisis-Kritika
16/35
With no deal from Russia, and an ultimatumfrom the ECB, the Cypriot parties plans tocreate a National Solidarity Fund, which willinclude public and Church assets, as well as oiland gas rights, which could be offered as
security for any foreign loan
Cyprus plans to split Laiki into two banks essentially good and bad banks hoping to
lower the price of saving the good bank.
Cyprus Crisis
-
8/22/2019 PPT on Banking Crisis-Kritika
17/35
Theres was lot of
Russian capital in Cyprus,estimated before thiscrisis at $15bln. Russian
depositors in Cyprushave been using thesector for tax evasion
and secrecy basedactivity.
Cyprus spentinvestments poorly
instead of creating realassets in country.
Offshore assets in Cyprusjust move elsewhere,
such as Latvia or theCayman Islands.
This leads to bust thereal estate and tourismbusiness in Cyprus as
foreign investors rushesto sell property held in
Cyprus.
Reasons behind Crisis
-
8/22/2019 PPT on Banking Crisis-Kritika
18/35
The Crisis of Cyprus shows the lack of financialstrengthening and mutual trust in EU ,more specifically inwestern banking system. Some experts thinks that if ithas happened in Cyprus, It can happen again in EU.
Tax havens have been criticized because they often resultin the accumulation of idle cash which is expensive andinefficient for companies to repatriate. Many tax havensare thought to have connections to "fraud, money
laundering and terrorism supporting activities.IMF shouldlook into the TAX HEAVEN status of such countries toavoid repetition of CYPRUS Crisis.
Learnings for the World
-
8/22/2019 PPT on Banking Crisis-Kritika
19/35
So who is next.. Any Guess
-
8/22/2019 PPT on Banking Crisis-Kritika
20/35
Agenda
Introduction
Japanese asset price bubble
Cyprus Crisis
Spanish Financial Crisis
How to Avoid Banking Crisis
-
8/22/2019 PPT on Banking Crisis-Kritika
21/35
Spanish Financial Crisis
SPANISHFINANCIAL CRISIS
2007
2008
2009
-
8/22/2019 PPT on Banking Crisis-Kritika
22/35
European Sovereign Debt AGlimpse
Referred to as the Euro zone crisis 1992 signing of the Maastricht treaty, under which
the members of EU pledged to limit their deficitspending and debt levels.
In 2000s members failed to stay within the
confinement of Maastricht criteria and startedsecuritising future government revenues to reducetheir debt levels/ deficit.
Sovereigns started selling rights to receive futurecash flows, allowing govt to raise funds without
violating debt and deficit targets.
-
8/22/2019 PPT on Banking Crisis-Kritika
23/35
International agreed standards were
completely ignored Masking of deficit and debt levels through
a combination of techniques likeinconsistent accounting, off balance
sheet transactions, use of complexcurrency and credit derivatives structures.
With the increase in private and govt debtlevels fears of sovereign debt increasedfrom the late 2009.
European Sovereign Debt AGlimpse
-
8/22/2019 PPT on Banking Crisis-Kritika
24/35
The Bank bailouts and economic downturn increased
leading to downgrading of credit rating Concerns increased in early 2010 which resulted into
implementation of financial support measures such asEuropean Financial Stability Facility (EFSF) and EuropeanStability Mechanism (ESM)
EFSF an SPV created to deal with the European sovereigndebt crisis
ESM An international organisation located in Luxembourgcreated to safeguard and provide instant access tofinancial assistance programs, max lending capacity Euro600 million
European Sovereign Debt AGlimpse
-
8/22/2019 PPT on Banking Crisis-Kritika
25/35
Spanish Financial Crisis
Spain had a comparatively low debt
levels as compared with advancedeconomies prior to crisis
Spains trade deficit reached to 10% ofthe countrys GDP
Debt was avoided by ballooning taxrevenues generated from the housing,which helped in managing the increasedgovt spending without debt
accumulation.
-
8/22/2019 PPT on Banking Crisis-Kritika
26/35
When the housing bubble burst, Spain
spent large amounts on bank bailouts. In May 2012, Bankia received 19 bn euro
bailout
In Sep 2012 Spanish Banks required Euro
59 bn in additional capital to offsetlosses from real estate investments
Spanish Financial Crisis
-
8/22/2019 PPT on Banking Crisis-Kritika
27/35
Effects
Spain Debt Levels
Property Bubble
Spanish Banking System
Unemployment Crisis
-
8/22/2019 PPT on Banking Crisis-Kritika
28/35
Spanish Financial Crisis
-
8/22/2019 PPT on Banking Crisis-Kritika
29/35
Property Bubble
House ownership in Spain is above 80%
Desire to own house was encouraged bygovernment in 60s and 70s
Tax regulations too encourage houseownership: 15% of mortgage amount to be
deducted from personal income tax Banks offered 40 years mortgage and most
recently also started offering 50 yearsmortgages
Euro 651,168,000,000 was the mortgagedebt at the end of 2nd quarter of 2005.
-
8/22/2019 PPT on Banking Crisis-Kritika
30/35
Spanish Banking System
The Spanish banking system had been
accredited with one of the most solid andequipped among all western economies
Unusual accounting standards were observedwhich have smoothened earnings for thebusiness but have misled the regulators
Accounting standard such as DynamicProvisioning which violated the standards setby IASB
In May 2012, credit ratings of Spanish Banking
system has been downgraded, some have evengot junk status.
-
8/22/2019 PPT on Banking Crisis-Kritika
31/35
Employment Crisis
The unemployment rose to 17.4% at the end of FY 2009
4,000,000 people were unemployed in a single month ofMarch 2009
Spains unit labor cost also increased 40% relative toGerman unit labor cost changes
2 tiered workforce: Privilege labor which got the wageincrease and the unprivileged labour which were offeredpink slips
Spains unemployment rate reached 29.16%, twice thatof the Euro-zone average in April 2013
-
8/22/2019 PPT on Banking Crisis-Kritika
32/35
Lessons learnt from the Crisis
Sustainability of the external deficit in a
monetary union A Need to Increase Financial
Transparency and Regulations
A Need to Increase Spanish Banks
Efficiency An Urgent Need to Incentivize a Culture
of Entrepreneurship, Innovation andCompetitiveness
-
8/22/2019 PPT on Banking Crisis-Kritika
33/35
Agenda
Introduction
Japanese asset price bubble
Cyprus Crisis
Spanish Financial Crisis
How to Avoid Banking Crisis
-
8/22/2019 PPT on Banking Crisis-Kritika
34/35
Steps to be taken to avoidBanking Crisis
Better mortgage products Avoid high volatility in monetary policy
Appropriate response of monetary policyto asset prices
Manage capital flow volatility Look for signs of over leveraging
Active dynamic financial regulation
-
8/22/2019 PPT on Banking Crisis-Kritika
35/35
Thank you
top related