The Role of Banks in Economic Recessions - 1644 Words

The role of banks in economic recessions 05.05.2009 In today’s wavering global economic context, the word `crisis` is omnipresent, taking the media by assault and infringing into the population’s daily life, although many countries haven’t even officially entered recession yet. Although recession is generally referred to as a negative Gross Domestic Product growth for a period of at least two consecutive quarters, other important economic change variables, such as current national unemployment rates, consumer confidence, capacity utilization, spending levels and business profits must be taken into account when defining a recession and its attributes. Therefore, recession can be†¦show more content†¦Apparently, central bankers and financial supervisors are to blame, too. Although official reports have constantly been giving warnings about excess global liquidity, urging central bankers to worry about asset bubbles even when consumer-price inflation w as low and banking supervisors to look beyond individual firms to the soundness of the financial system as a whole, they failed to act, allowing credit-driven excesses to expand rapidly. Therefore, central bankers are accused of failing to appreciate the scale of risks being built up in the â€Å"shadow† banking system that modern finance had created and of fuelling a credit bubble by keeping money too cheap for too long. But the criticisms are most often directed at the Federal Reserve, blamed for cutting the federal funds rate, which fuelled the housing bubble and aggravated the commodity-price surge. The interest-rate cuts in late 2007 and early 2008 may have been appropriate for a weak and financially stressed American economy. But they sent the dollar tumbling and left monetary conditions far too loose in many emerging markets that chose to link their currencies to the dollar and whose economies had long been growing beyond their sustainable pace. With all these complex problems coming along with the financial crisis, it seems that the â€Å"one tool, one target† approach which central bankers used to utilize in order toShow MoreRelatedThe Transition Of Central Bank1478 Words   |  6 PagesThe last five years have been peculiar for the global economy, with recession looming around. Consequently, the role of future monetary policymakers and the interpretation of the effects of the policies have become desperately critical. In order to restore the ailing financial markets, central banks have engaged in activities aimed at reducing the interest rates to zero and expanding the balance sheets. The efforts have gone a long way toward preserving the financial markets and saving the globalRead MoreRole Of The Business Cycle Dating Committee Of The National Bureau Of Economic Research1292 Words   |  6 Pages In this paper, I will explain the roles and importance of the Business cycle Dating committee of the National Bureau of Economic Research. I will also explain how the NBER defines and dates recessions. Finally I will explain the important aspects and effects of the last recession. The Business Cycle is â€Å"†¦the ups and downs in economic activity, defined in terms of periods of expansion or recession† (Dr. Econ). Expansion is the period in which employment, production, sales and income increaseRead MoreLending And Shadow Banking1444 Words   |  6 Pagesdemonstrated by the bankruptcy of Lehman Brothers, the fourth largest investment bank in the US, and with many other financial institutions such as Merrill Lynch and the Royal Bank of Scotland having to be bailed out. 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