The model looks sound on the surface: offer mortgages to borrowers with poorer credit ratings at higher rates. But as the US subprime mortgage crisis of 2007-08 proved, the risks associated with this strategy may override the benefits. This mortgage crisis sparked a chain of events that shook the world and ended in a global meltdown.
Federal Reserve System
One thing leads to another, as was true of the San Francisco earthquake of 1906, the Panic of 1907 and the creation of the U.S. Federal Reserve System in 1913. A series of bank runs threatened to hurl numerous firms into insolvency, but unified efforts in the fall of 1907 stemmed the tide, bringing stability and trust back to the sector.
As calamitous as the pandemic’s effect has been on economies worldwide, in many cases, it has only fueled concerning issues that pre-dated it. COVID-19 will eventually be consigned to our past, but its effects will linger on for decades. What are the four questions we need to ask ourselves now to shape the best plan of action toward economic healing, sustained recovery, innovation, cooperation and prosperity while avoiding potential landmines?
The COVID-19 pandemic halted the United States’ record-setting employment streak, causing the world’s foremost economy to shed nearly 10 million jobs in 2020. With warmer weather, vaccine rollouts and federal stimulus on the immediate horizon, employment numbers are picking up steam faster than expected, causing optimism to seep into financial markets. But the US has a long road to traverse before recouping all of its lost jobs and gaining more.
2020 wasn’t a good year for shareholders scheduled to receive bank dividends. Regulators swiftly put a halt to dividend payments from banks to ward off a pandemic-induced crisis, requiring lenders to conserve capital and distribute it as needed to consumers and businesses. The dividend pipeline is slowly reopening as confidence grows in the banks’ stability, but it may be a while before shareholders receive their fair shares of the profits.
It has been an unusually eventful year for central banks all over the world in 2020, and given the current circumstances, the coming year is set to be no less busy. With a variety of challenges to overcome, therefore, central banks hope to achieve several important goals before the end of 2021.
In June, The Atlantic published “The Looming Bank Collapse”, a piece by University of California, Berkeley law professor and ex-Morgan Stanley derivatives structurer Frank Partnoy, which generated significant debate over whether a banking crisis in the same mould as that witnessed during the global financial crisis (GFC) is just around the corner.
The last decade or so has seen concerns grow significantly over the long-term health of the dollar. Those concerns have only grown in urgency since the coronavirus arrived on the shores of the United States in February, triggering a nationwide shutdown of the world’s biggest economy.
The Federal Reserve System’s Board of Governors (the Fed) in the United States concluded its two-day monetary-policy meeting on Wednesday, September 16, announcing that interest rates will remain unchanged at near-zero (0-0.25 percent), another decidedly dovish signal that its monetary policy will effectively be on hold for the next few years.
Occasionally, an anomaly becomes the new normal, and this seems to be true of negative interest rates in many regions of the world. Used as a tool of expansionary monetary policy in the aftermath of the global recession, negative rates may be wearing out their welcome, especially in some countries in Europe. But can they be scrapped entirely, or are they a natural part of the global economy’s cyclical trends?