Role of securitization and structured finance products in the recent Essay

Role of securitization and structured finance products in the recent banking and financial crisis - Essay showcaseThe paper describes the role of securitization and structured finance products in the recent banking and financial crisis. Financial institutions cater to the take of different types of customers by providing relevant financial services. Financial institutions worldwide have been affected by the uncomely market environment created by the US sub fix fiasco. Trouble began when the financial companies started relying too more than on the innovation in the blind faith that it will yield returns. As it is common knowledge that banking industry has suffered the most due to the current meltdown, the presages of the malaise started emerging in the US mortgage business organization first. The cracks appeared in the banking system. caparison prices, according to Financial World started falling in the year 2005. Initial symptom appeared in the market for sub prime resident ial mortgage-supported securities as investment demand shrank in 2006. In February 2007, auctions to finalise rates on ARS instruments failed because of decreasing investor demand. Cracks in financial market became wide open in June 2007 with the failure to meet the lenders call on Collateralised Debt Obligations by two Bear Stearns hedge funds for subprime loans.... afterward a reset period of two years, pursuit rates went higher as Fed interest rates also touched a high level, on which sub prime mortgage interests were based. Housing prices started declining sharply after the boom period. A wave of repossessions was behind this trend. Banks started taking precautionary measures, cutting keep going on credit to cover risks to their investments. Being forced to dry up the whole sale stick market and their balance shreds from the adverse affects, banks started shrinking their portfolio. The Pension Funds suffered the severe losses being the prime purchasers of sub prime mortgage bonds. As the banks have hidden their holdings of sub prime mortgages in off-balance sheet instruments such as structured investment vehicles or SIVs, they were reluctant to bear the losses. 2. What caused the crisis? The US financial system was under observation, as reported for planning its restructuring and strengthening control but still there is no clarity on what regulatory policy change has been enforced even till June 2009. Limits on salmagundi of the investment with commercial banking within the financial market were put off by getting out with the Glass-Steagall Act. Investment banks were not regulated for levering up their conditions. Financial innovations promoted easy availability of credit. Loan s against mortgages were securitised and forwarded by associates of Lehman Brothers and other financial companies. The outcome was unhindered consumer spending and reducing household savings. (Schneider & Kirchgassner, 2009). In the US, internal policies and globalisation wa s responsible for the financial crisis, which was fuelled by innovative products like complex derivative securities,