Tight Rules made Headline News
It is a wake-up calling for professional banking institutions when the collapsed of Lehman Brothers put a global statis trap on the minds of consumers and manufacturers. Did you remember how many jobs were loss overnight? How about the sheer numbers of businesses closing down? What about people being driven out of their houses due to massive wave of foreclosures when banks are hot on pursuits to
claim back the variance in negative outstanding equity. Once the announcement came, every newspapers made the headlines on
berserk withdrawal of profitable avenues to cover crazy losses incurred from speculative plays. It is known as one of the worst bulge bracket crashes ever in past histories that no financial institutions ever made it crashed so hard and swift.
Core banking arms forced to Credit Remedy
An alarming situation has hit the ground, filled with unwanted debris, credit bureaus and reference agencies are forced into dire assistance in
performing structural reforms an undergo immediate transformation. Under the legistative matter, the US Federal Reserve chief Janet Yellen was too pressured to sustain America's economic infrastructure by implementing new policies, namely BASEL III requirements for banking sectors, as well as introducing government stimulus by tapping on to current reserves. The deployment of cash surpluses generated from previous gains during booming times had to curb the current low
inflationary environment and bail out those who are facing bankruptcies in due time. It is not an easy task to perform since many companies especially global corporations are knocking hard on government doors for instant bailouts. Not only are banks required to observe new stringent regulations, but also faced new competitors from various non-banking industries to compete in an unhealthy manner.
Non-financing Creditors promote Entry
Here comes some of the most scariest entrants in the non-finance sectors. Global firms, who bypassed the Recession easily, are pulling out of profitable segments and penetrating the lending sectors for higher profit margins. Since companies are facing dire crisis, these lenders have higher bargaining powers to command more authorities in negotiations when it comes to borrowing cash. The common term for it is known as "
Shadow Banking", whereby
non-finance firms bypass the financial legislations and loan out huge sums of money undertable to the needy corporations who are way behind the queue yet requiring immediate assistance. No one can fault them for jumping queue albeit taking up more risks in remunerating the (unlicensed) lenders with higher interests or through stock options. The government is slow to react as the shock has inevitably hit taxes and reserves are insufficient to provide adequate coverage as more firms go bust while staying loyal in queues.
Who will Emerge victorious?
At the end of the day, this vicious cycle repeats itself again and again. An infamous old adage by the saying, "
One can count on human's greed for the next Recession to occur", this seems to a statistical fact. Core banking segments remain one of the most lucrative industry even in an event of economic downturn as established firms demand more cash to generate productivity or bail out from current troubles. It is the non-finance teams that profitted the most due to the fact that they possessed authoritative commands in leading the hurt out of the mess. The regulatory bodies don't have the luxury of time to clam down such shadow activities as they ought to contribute to the settlement of emergency bailouts which left the other competitors to savor for savage. Who is to be blame?
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