BIC 3032 Case Study Assignment Sample 2023
1. Introduction
Financial crises negatively influence the economy of a country and create several challenges for the people and the banking business from different perspectives. The impact of the Banking crisis can be observed in the economic stability, investment and inflation rate of a country. This study is going to focus on the two given case studies on the financial crisis, analysis of the major impact of bank crises in the world, critical explanation of banking business and the role of the Central Bank in managing the crisis. The aim of the study is to understand the different major impacts of the Banking crisis in the world economy and the significant role played by the Central Bank in controlling the crisis.
2. Summary of Case study 1
This case study is based on the collapse of the banking organization Lehman Brother in the year 2008. The most significant impact on the world economy that has been observed due to the collapse of Lehman Brothers is the finance bail-out to shore the taxpayer, worst recession, decline of GDP, negative impact in loan and investment and decline of business practices. According to the view of Huber, (2018, pp. 869), the collapse of bank organisations has negative influence practices and economic conditions on the taxpayer to a great extent. On the other hand, one of the most negative impacts of the collapse of Lehman Brothers is the occurrence of the worst recession in the last 80 years. In addition, the decline of the GDP has become a global issue during the bank crisis and it has negatively influenced the economic stability and the customers spending of the common people. However, the decline of the GDP has resulted in the financial emergency for the government in order to run the economic and international business from different perspectives. As per the perspective of Marshall et al, (2019, pp. 1167), the negative impact in the loan and investment and the decline of the business practices has been observed due to the bank crisis and it has affected the banking business process.
3. Summary of case study 2
This study is associated with the financial crisis of Deutsche Bank that has influenced the developed markets in recent decades in a significant way. The major impact due to the financial crisis of Deutsche Bank in the economy is the impact on monetary policy, limitation of credit amount, fixed exchange rate, steady GDP in 1970 and increased debt of organization and consumer. According to the view of Kauko and Tölö, (2019), the entire monetary policy of Europe has been negatively influenced due to the financial crisis of Deutsche Bank and its impact on all the small and big business companies of the country. In addition, the limitation of the credit amount and the fixed exchange rate has also influenced the international business practices of the country to a great extent.
4. Impact of the bank crisis in the world
Bank crises have the capability to affect all the economic factors of a country from different perspectives and create major challenges for economic survival. The most significant impact in the world that can be observed due to bank rises are the rising unemployment, reduction of customer spending, high price hike, increase of inflation rate, lower down of the financial wealth and tight credit condition. According to the view of Ghosh, (2016, pp. 80), the rise of unemployment problems and crises can create significant challenges and problems in the economic stability of a country. Reduction of the customer’s spending is one of the most significant impacts caused due to the banking crisis in the world. The decline of the per capita income of the country and fall of the Gross Domestic Product can reduce the buying capabilities of the global customers. In addition, the increase of inflation rate and price hike is one of the most negative impacts of the financial crisis on the economy of a country. According to the view of LaBerge, (2018, pp. 105), this process can contribute in the process of lowering down the financial wealth of different business organisations and negatively impact their business practices and performances to a great extent. Bank crisis can be also resulted as the tight end of the credit conditions of the different banking services and resulted as the high risk in the investment and loan process of the world. In addition, it can also result from the loss of profits in revenue in different regional businesses and the negative effects in the International Exchange rate.
5. Banking business
Banking Business can be defined as the practices of different financial activities by the bank in order to increase revenue and profit in a significant way to ensure corporation survival. According to the view of Jensen and Johannesen, (2017, pp. 3414), banking business included three specific activities and their customer’s deposit, offering business loans and basic investment. All the customer banks of the world offer customer deposit options by providing specific interest to the Global customer and ensure the safety and security of the financial asset. Offering Business loans to different small and big business organizations is a major activity of banking business. Banks increase and earn their revenue through loan services to the customer at a specific rate set by the Central Bank of the country. According to the view of Tran et al, (2017, pp. 120), different basic investment offers is one of the prime business activities performed by the bank in order to ensure their corporate survival and business development. Most of the bank in price in government projects and private project key stakeholders and hold a share in the profit of the organisation.
6. Role of the central bank
The Central Bank plays a great role in the process of managing financial crises and challenges during the economic problems of the United Kingdom. According to the view of Kudlyak and Sanchez, (2017, pp. 50), the Central Bank has the authority to change the monetary policy and banking system based on the economic situation for managing different functional areas and activities. During the financial crisis, the most significant roles played by the central bank are managing the interest rate, focusing on economic stability, focusing on reducing unemployment, maintenance of inflation rate, and dictating return to investors. According to the view of Christensen and Krogstrup, (2019, pp. 250), the Central Bank focuses on managing the interest rate during financial crises by modifying the existing monetary policies and interest policies of the United Kingdom. In addition, for the maintenance of interest rate Central Bank releases specific guidelines and advice to different regional banks of the country in order to ensure financial failure in their banking business procedure. One of the most significant roles played by the central bank during the financial crisis is focusing on economic stability. According to the view of Caputo and Pedersen, (2019), the Central Bank implemented emergency economic policy during the financial crisis for the management of cash flow and stock exchange in a significant way.
During the financial crisis, the Central Bank played a great role in managing the unemployment rate and inflation rate of the country by focusing on producing more economic and business opportunities for the people. According to the view of Dräger et al, (2017, pp. 110), for management of the inflation rate, the Central Bank focuses on the price hike of different products and organisational pricing strategy during the financial crises. One of the most significant roles played by the central bank during the financial crisis is the dictate return of the investors. According to the view of Goy et al, (2018, pp. 115), the bank focuses on low-risk investment during the financial crisis in order to manage different banking services and activities in an effective way. Interest in low-risk areas during the financial crisis greatly helps the country to recover from any kind of financial loss and challenges in a significant manner. This process also helps in managing the economic stability of a country up to a great extent by ensuring high returns in international investment.
7. Conclusion
From the above analysis, it can be stated that the financial crisis had several challenges and barriers for banking service and banking business. Financial crises greatly influence monetary policy including loan rate, interest rate, inflation rate and different economic components of the country to a great extent. The significance highlighted areas of this study are the given case studies on the financial crisis, analysis of the major impact of bank crises in the world, critical explanation of banking business and the role of the Central Bank in managing the crisis. The summary of the two case studies has focused on the major challenges and barriers faced by the bank during the financial crisis of 2008. In addition, the major impact of the banking crisis in the world has been analysed and discussed based on the international business process and the major consequences of the crisis on the economy. The discussion and analysis of the banking business can help to understand different functional areas and activities performed by the bank in order to manage their financial relationship and business. Discussion of the role of Central Bank in managing the financial crisis can help us to understand the responsibilities and measures taken by the central bank during the financial crisis.
Reference List
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Christensen, J.H. and Krogstrup, S., 2019. Transmission of quantitative easing: The role of central bank reserves. The Economic Journal, 129(617), pp.249-272. Online at: https://academic.oup.com/ej/article-abstract/129/617/249/5250963 [Accessed on: 25th May, 2020]
Dräger, L., Lamla, M.J. and Pfajfar, D., 2016. Are survey expectations theory-consistent? The role of central bank communication and news. European Economic Review, 85, pp.84-111. Online at: https://www.sciencedirect.com/science/article/pii/S0014292116300149 [Accessed on: 25th May, 2020]
Ghosh, A., 2016. How does banking sector globalization affect banking crisis?. Journal of Financial Stability, 25, pp.70-82. Online at: https://www.sciencedirect.com/science/article/pii/S1572308916300560 [Accessed on: 25th May, 2020]
Goy, G., Homme, C. and Mavromatis, K., 2018. Forward Guidance and the Role of Central Bank Credibility (No. 614). Netherlands Central Bank, Research Department. Online at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3296214 [Accessed on: 25th May, 2020]
Huber, K., 2018. Disentangling the effects of a banking crisis: evidence from German firms and counties. American Economic Review, 108(3), pp.868-98. Online at: https://www.aeaweb.org/articles?id=10.1257%2Faer.20161534&utm_source=TrendMD&utm_medium=cpc&utm_campaign=American_Economic_Review_TrendMD_1 [Accessed on: 25th May, 2020]
Jensen, T.L. and Johannesen, N., 2017. The consumption effects of the 2007–2008 financial crisis: Evidence from households in denmark. American Economic Review, 107(11), pp.3386-3414. Online at: https://www.aeaweb.org/articles?id=10.1257/aer.20151497 [Accessed on: 25th May, 2020]
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Kudlyak, M. and Sanchez, J.M., 2017. Revisiting the behavior of small and large firms during the 2008 financial crisis. Journal of Economic Dynamics and Control, 77, pp.48-69. Online at: https://www.sciencedirect.com/science/article/pii/S0165188917300258 [Accessed on: 25th May, 2020]
LaBerge, D.A., 2018. Recession in Retrospect: Financial Regulation & Consumer Protection Ten Years Since the 2008 Financial Crisis. Minn. L. Rev., 103, p.2423. Online at: https://heinonline.org/hol-cgi-bin/get_pdf.cgi?handle=hein.journals/mnlr103§ion=57 [Accessed on: 25th May, 2020]
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Tran, L.T.H., Hoang, T.T.P. and Tran, H.X., 2018. Stock liquidity and ownership structure during and after the 2008 Global Financial Crisis: Empirical evidence from an emerging market. Emerging Markets Review, 37, pp.114-133. Online at: https://www.sciencedirect.com/science/article/pii/S1566014116300814 [Accessed on: 25th May, 2020]
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