The Crisis of the Financial Markets: Origin, Short-term Reaction and Long term Adaptation Requirements
The crisis of the financial markets had its onset as early as February 2007, when the first defaults of mortgage debts with a low rating of creditworthiness were reported. Following that, the crisis shifted to the secured mortgage debt market to finally affect the entire financial system. All in all, the required valuation adjustments in the financial services are estimated to $ 3,400 billion. The resulting losses compelled, on a world-wide basis, the allocation of public funds to credit institutions, a considerable increase of government guarantees to finance credit institutions, the reduction of the key interest rates to approximately 0 percent, and, moreover, direct measures safeguarding liquidity in the credit sector on behalf of the central banks. Macroeconomic imbalances, arbitrage dealings between low and high interest currencies and an overly expansive monetary policy of the US Federal Reserve can be quoted as the macroeconomic reasons for the crisis on the financial markets. However, the crisis also unveiled deficiencies within the control and supervision systems of the financial service providers. The securisation of mortgages and other financial instruments allowed financial service providers to shift business activities outside the regulated area. These regrouping activities in turn required a fair-value assessment of securitised credits and pro-cyclically triggered higher equity provisions within the Basel II standards.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 82 (2009)
Issue (Month): 12 (December)
|Contact details of provider:|| Postal: Arsenal Object 20, A-1030 Wien|
Phone: (+43 1) 798 26 01-0
Fax: (+43 1) 798 93 86
Web page: http://www.wifo.ac.at/
More information through EDIRC
|Order Information:|| Postal: Austrian Institute of Economic Research Publikationsverkauf und Abonnentenbetreuung Arsenal, Objekt 20 A-1030 Vienna/Austria|
When requesting a correction, please mention this item's handle: RePEc:wfo:monber:y:2009:i:12:p:909-931. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ilse Schulz)
If references are entirely missing, you can add them using this form.