The Collapse Of The Icelandic Banking System Finance Essay - Free Essay Example

Sample details Pages: 7 Words: 1955 Downloads: 2 Date added: 2017/06/26 Category Finance Essay Type Research paper Did you like this example? In the transition from a small-scale, low risk deposit money banking system to a universal international banking system oriented toward high-risk leveraged investments and depending heavily on foreign wholesale financing was accomplished in less than a decade. The three leading banks, Glitner, Kaupthing, and Landsbanki, were among the fastest growing financial institutions in the world (Eggertsson and Herbertsson, 2009). As the domestic economy had grown and stock prices had soared, the three banks assets had expanded from 100 percent GDP in 2004 to 923 percent at end 2007 (IMF,2008) which is almost ten times the countrys GDP. Early October 2008, the Icelandic economic euphoria was crushed by the three large banks failures, bringing down the financial system, creating an economic crisis, social and political chaos. The purpose of this Report is to respond to the issue as a regulator for banks, on the collapse of the Icelandic banking system by Identifying th e main causes of the collapse of the banks. Recommending prudential regulations which will protect the community from such devastating bank failures in the future. The failure towards the three large banks, effectively taken over the government placed a burden of debt on citizens. II. Main causes of the collapse of the banks Growth of Banks and size at the time of collapse The main explanation on the collapse of the three large banks, Glitner, Kaupthing, and Landsbanki is highly due to the rapid expansion and their subsequent size when they fell in October 2008. Internal growth of the bank was due to the increase in loan portfolios, averaged of nearly 50% from the beginning of 2004 until their collapse (Althingi,chapter2,2009); commonly associated with poor quality loans as a result of poor underwriting, record keeping, management and supervision (Flannery,2009). The quality of the loan portfolios were eroded under these circumstances as such large-scale and high risk growth were not compatible with the long-term interests of solid banks where there were strong incentives for growth within the banks. Foreign operations of the banks rocketed and a change in the nature of the banks activities were also seen as investment banking gained importance as part of their operations. An opening of global debt financing further drove the growth of the banks. The banks received high credit ratings; inherited from the countys sovereign debt rating on the sound position of the state and expectations. They also had access to the markets in Europe due to the European Economic Area Agreement (EEA), to participate in a European Unions single market without a conventional EU membership. Such big growth in lending by the banks will cause their asset portfolio to develop into a very high-risk one (Jimenez,2006). As the liquidity crisis started in 2007, foreign deposits and short term securitised funding became the main source of funding for the three banks and these type of financing were very sensitive to market conditions. A run on the collateralised loans was as detrimental as a run on foreign deposit accounts. The likelihood of run therefore increases, both on deposits and other means of funding. At the time of the collapse, repayment schedule of outstanding bond issues and collateral loans were burdensome due to the enormous growth throughout the decade. Weak equity As a result of the abundance of supply of credit with low interest rates in the international markets, the banks were able to borrow more money at low interest rates and passed in on to its customers. The economic resources that the banks had were invested into its own shares and were known as weak equity. It consisted of loans with collaterals and forward contract on own shares. It was reported that these three banks have financed themselves with 300 billion of Iceland Kro na (IKR) of their own shares in mid-2008(Althingi, chapter21, 2009). Hence, the bank capit al ratios did not reflect in the real ability of the banks in withstanding losses if it were to happen. Leveraging of the banks owners The owners of the large three banks were amongst the biggest borrowers (Althingi, chapter21 ,2009). As owners, they had easy access to the loans and received substantial facilities though banks subsidiaries that operated money market funds. The largest debtors of Glitner, Kaupthing and Landsbanki were also the principal owners of the banks. The operations of the banks were in many ways characterised by their maximising of the benefit of majority shareholders, who held the reins in the bank, rather than by running reliable banks with the interests of all shareholders in mind and to showing due responsibilities towards creditors. There is a conflict of interest between the operation of the banks and operation of other companies owned by the same owners. When in the late 2007 and 2008, where the banks began to experience funding problems, it se emed that the boundaries between the interests of the banks and the interests of their biggest shareholders were often unclear and the banks were seen to put more emphasis on backing up their owners instead. (Moore, 2010). The privatisation of the banks were owned and controlled by three groups of investors who used the banks to extend their balance sheet, and not by running the bank reliably and responsibly towards the interests of all shareholders. Concentration of risks Risk diversification is vital in the operation of the banks. As the banks are heavy indebted, it is therefore important for their portfolio of assets to be widely spread. As the largest debtors of the three banks are also the principal owner of the banks, there is a high risk such that the performance of the bank is dependent upon the performance of the group. It is too much risk for a bank to handle as the group falls and in the event when more loans is given, proven to be harmful to the depositors and cred itors if they default. There was the exposure of more than one related party which accumulated within individual banks in the country and also between banks as there were groups of interrelated borrowers within all the banks. As a consequence, systemic risk exposure became significant to the loan portfolios of the banks. The loan of the groups amounted up to 5.5 billion EUR, 11% of all the loans and about an aggregated equity of 53%.( Althingi, chapter21 ,2009) This significant systemic risk does not only affect one of the banks if it fails but all three banks. III. Recommendations on prudential regulations to protect community from future bank failures Keeping up in pace with the monitoring on financial institutions As the banks pursued rapid international growth and domestic expansion, it is vital that FSA is able to keep up to date with the rapid growth of the banks and be well equipped with technical expertise and the equipment necessary to produce high quality co mprehensive surveys of the position in the development of individual financial institutions. It was clearly seen from the FSAs budget up to 2006 that it was insufficient for it to keep pace with the growth ( Althingi, chapter 2,2009) and hence unable to fulfil its tasks properly. Vast expert knowledge is required on the operations of banks, economics, accounting, and legislation, especially for country has minimal experience in the financial industry. The Depositors and Investors Guarantee Fund (DIGF) needed strong surveillance under the FSA as an insufficient sum and the potential losses to foreign depositors will lead to serious problems. In closely monitoring the financial institutions and its activities, prompt actions should be exercised when growth is too rapid to reduce the size of the balance sheets of the banks, where the banking system will become far too big in relative to the size of the economy. Contingency plans There should be a stricter regulation into the s ystemic risk management on the capital reserve in the financial institution and also a compulsory contingency plan as to withstand a financial shock within the company. These contingency plans are to be clear and realistic. A strict act on minimum equity capital of banks should also be placed on these institutions. In the event of the failure in 2008, the rules were based on the so-called Basel II standards and provide that the capital base of banks should always extend more than 8% of the risk base. However, during the time where the financial system tumbled, capital ratios did not reflect the real strength as it own shares that risks exposure through direct collaterals and forward contracts on their own shares( Althingi, chapter21 ,2009) More sectors to identify specific risks It is important that there is compulsory of university degree, extensive knowledge and experience in financial market in hiring competent staff. With the resources and expertise, the organisational str uctured can be changed to incorporate groups of experts from different units who examine specific risks (including market risks) across sectors (Jà ¤nnà ¤ri,K. ,2009). A department for solvency and capital adequacy, department of credit and market risks can be introduced on top of the current four units. This can lessen the danger of compartmentalisation of the supervisory authority along the industry lines and allow regulators to concentrate on its own supervisory tasks. Maximise the amount of shares that can be owned by the debtor, Cross-ownerships Supervision in cross-ownerships has to be tighter and rules more stringent. The fact that banks were financing purchases of their own banks shares by their owners and other clients poses a large indirect risks in each others shares (Jà ¤nnà ¤ri,K. ,2009). This is especially true for a small economy. Cross-ownership is hard to avoid in the absence of a comprehensive regulatory and supervisory framework. Therefore close supervis ion is vital in the case of any methods used to boost their capital adequacy artificially. IV Conclusion In the wake of a flawed process of privatisation, together with insufficient experience in the financial industry; the rapid growth of the three banks, Glitner, Kaupthing, and Landsbanki in a short period of time was deemed only possible by applying weak underwriting standards, loans to large holding companies and relying on weak equity. The fall of these three banks resulted in some of the biggest bankruptcies ever. Preliminary estimates indicate that creditors might have lost around 70 billion dollars in the crisis (Eggertsson and Herbertsson, 2009)and about roughly $330,000 for every Icelandic man, woman and child (Lewis,2009). The failure and the collapse of these banks as a result of these iniquities have caused a significant burden to the Icelandic citizens. A change in the organisational structure of the prudential regulations is to be implemented, in order to pre vent and protect the community from such devastating bank failures in the future. Aliber,R.,2008, Monetary Turbulence and the Icelandic Economy, University of Iceland, June 20, 2008. https://www.hi.is/files/skjol/icelandlecutre-May-2008.pdf Althingi,2009, Chapter 2: Summary of the Reports Main Conclusions, Report of the Special Investigation Committee to the Icelandic Parliament Althingi,2009, Chapter 21: Summary of the Reports Main Conclusions, Report of the Special Investigation Committee to the Icelandic Parliament Buiter,W.,2008, The Icelandic banking crisis and what to do about it: The lender of last resort theory of optimal currency areas, Centre for Economic Policy Research, Policy insight No. 26., October 2008. https://www.cepr.org/pubs/PolicyInsights/PolicyInsight26.pdf Eggertsson,T. and Herbertsson,T. 2009, System Failure in Iceland and the 2008 Global Financial Crisis, University of Iceland University of Reykjavik, June 10, 2009. Flannery,M. 2009, Icelands Failed Banks : A Post-Mortem, University of Florida, November 9, 2009. International Monetary Fund, 2008, Iceland: Financial System Stability Assessment-Update, December 2008. Jà ¤nnà ¤ri,K., 2009, Report on Banking Regulation and Supervision in Iceland: past, present and future, March 30, 2009. https://www.island.is/media/frettir/KaarloJannari%20_2009_%20Final.pdf Jimenez,G., J. Saurina,2006, Credit Cycles, Credit Risk, and Prudential Regulation. International Journal of Central Banking 2, February 2006, pages 65-98. Lewis, Michael, 2009, Wall Street on the Tundra, Vanity Fair Magazine, April 1, 2009. Moore,J.,2010, Iceland was negligent over banking collapse, The independent, April 13, 2010. https://www.independent.co.uk/news/business/analysis-and-features/iceland-was-negligent-over-banking-collapse-1943153.html Don’t waste time! Our writers will create an original "The Collapse Of The Icelandic Banking System Finance Essay" essay for you Create order

The Death of Marat, a Comparison. - 1151 Words

The two pieces of art I have chosen are â€Å"The Death of Marat â€Å"by Jacques Louis David, painted in 1793 and Vik Muniz’ modern recreation of the same painting from his series of works â€Å"Pictures of Garbage† 2008. â€Å"The Death of Marat† by David http://www.bc.edu/bc_org/avp/cas/his/CoreArt/art/neocl_dav_marat.html Vik Muniz’ â€Å"Marat† http://online.wsj.com/article/SB10001424052748703440004575548581385394008.html The most obvious comparison between these two works is the subject matter as one is a recreation of the other, though a recreation for a completely different reason to that which the original painting was created, and where one is a masterful oil painting from the eighteenth century the other is a powerful piece of photographic†¦show more content†¦Upon gaining entry to his apartments under false pretences she stabbed him to death whilst he was in his bath tub. 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Free Media Violences Media Violence is No P Essay Example For Students

Free Media Violences: Media Violence is No P Essay roblem Media Argumentative Persuasive EssaysMedia Violence is No Problem Violent movies and television shows have been popular since the mediums were invented. Westerns and Police shows have kept us inundated with gun play and car chases. However many feel that entertainment companies have gone too far. Politicians, like Al Gore and Bill Clinton, have officially asked the producers and television stations to tone down the violence in their products and try to have more family orientated messages. Why the sudden change in heart? The recent rash of schoolshooting and teen violence has made many Americans look for a reason; the reason they have found is the media. The entertainment industry is not a willing scapegoat. The entertainment industry is not a willing scapegoat. They have given some ground but refuse to give anymore. At the forefront of the battle are directors like Wes Craven whos violent scary movies, the Scream trilogy and Vampire, are squarely blamed for the rise in violent teens. On television shows like Buffy the Vampire Slayer and especially professional wrestling are being forced to calm down the violence they show and have been pushed back to later hours so that younger children cant watch (Clinton 3). While the Media industry have bent, the body count in Scream 3 was lowered and wrestling has promised to depict women more appropriately and tone down their violent bouts, they refuse to break which is what many parents are calling for. According to some According to the American Psychological Association, the average American child views 8,000 murders and 100,000 other acts of violence before finishing elementary school (Anonymous 1). That is a lot of violence for a young adult, but the question is not whether they see it but whether it drives them to be violent also. There are, however, no conclusive studies on the effects of violence in the media on children. Still the shear number of violent acts is bothersome and should be controlled. There is still too much violence on our nations screens, large and small, Said Bill Clinton at a benefit in California after one of the shootings (Clinton 1). He also urged for the rating system to be reevaluated and parents to watch programs along with their children. While many have clamored for a change nothing has been done. No effective bills have been passed and no groups have stepped forward to take on the media. There are many possible reasons for this. One of the major reasons is that the entertainment industry is large and very influential. Many politicians fear taking on such a large foe for fear of ending their career. Another reason is that it would be unconstitutional. Lynne Cheney remarked, They know you cant enact legislation, she said on CBS Face the Nation. This is wallpaper, a spin to make people think they are on the side of parents. (Cheney 1). Any legislation against the industry would be in violation of free speech and would never stand in the Supreme Court. Another possible reason for the lack of litigation is that it probably wouldnt work. There may be an abundance of numbers documenting the amount of violence children see but no one can tell whether it effects them or not. While cases of children imitating wresting moves have been documented, this doesnt show that they intended to hurt the other person. They are also the minority rather than the majority. Most people simply watch the shows and take them for entertainment. Another flaw in the argument to ban media violence is that none of the school shootings have been blamed on the media. .u8d34b1dfa1b8ac38e2a60ed19c87d0dd , .u8d34b1dfa1b8ac38e2a60ed19c87d0dd .postImageUrl , .u8d34b1dfa1b8ac38e2a60ed19c87d0dd .centered-text-area { min-height: 80px; position: relative; } .u8d34b1dfa1b8ac38e2a60ed19c87d0dd , .u8d34b1dfa1b8ac38e2a60ed19c87d0dd:hover , .u8d34b1dfa1b8ac38e2a60ed19c87d0dd:visited , .u8d34b1dfa1b8ac38e2a60ed19c87d0dd:active { border:0!important; } .u8d34b1dfa1b8ac38e2a60ed19c87d0dd .clearfix:after { content: ""; display: table; clear: both; } .u8d34b1dfa1b8ac38e2a60ed19c87d0dd { display: block; transition: background-color 250ms; webkit-transition: background-color 250ms; width: 100%; opacity: 1; transition: opacity 250ms; webkit-transition: opacity 250ms; background-color: #95A5A6; } .u8d34b1dfa1b8ac38e2a60ed19c87d0dd:active , .u8d34b1dfa1b8ac38e2a60ed19c87d0dd:hover { opacity: 1; transition: opacity 250ms; webkit-transition: opacity 250ms; background-color: #2C3E50; } .u8d34b1dfa1b8ac38e2a60ed19c87d0dd .centered-text-area { width: 100%; position: relative ; } .u8d34b1dfa1b8ac38e2a60ed19c87d0dd .ctaText { border-bottom: 0 solid #fff; color: #2980B9; font-size: 16px; font-weight: bold; margin: 0; padding: 0; text-decoration: underline; } .u8d34b1dfa1b8ac38e2a60ed19c87d0dd .postTitle { color: #FFFFFF; font-size: 16px; font-weight: 600; margin: 0; padding: 0; width: 100%; } .u8d34b1dfa1b8ac38e2a60ed19c87d0dd .ctaButton { background-color: #7F8C8D!important; color: #2980B9; border: none; border-radius: 3px; box-shadow: none; font-size: 14px; font-weight: bold; line-height: 26px; moz-border-radius: 3px; text-align: center; text-decoration: none; text-shadow: none; width: 80px; min-height: 80px; background: url(https://artscolumbia.org/wp-content/plugins/intelly-related-posts/assets/images/simple-arrow.png)no-repeat; position: absolute; right: 0; top: 0; } .u8d34b1dfa1b8ac38e2a60ed19c87d0dd:hover .ctaButton { background-color: #34495E!important; } .u8d34b1dfa1b8ac38e2a60ed19c87d0dd .centered-text { display: table; height: 80px; padding-left : 18px; top: 0; } .u8d34b1dfa1b8ac38e2a60ed19c87d0dd .u8d34b1dfa1b8ac38e2a60ed19c87d0dd-content { display: table-cell; margin: 0; padding: 0; padding-right: 108px; position: relative; vertical-align: middle; width: 100%; } .u8d34b1dfa1b8ac38e2a60ed19c87d0dd:after { content: ""; display: block; clear: both; } READ: Statistics Project Essay None of them has claimed it influenced them or that they had done it because they saw it on television. In fact there has never been a case where the defense that a movie or television show caused the crime. While many try to over look these facts the fact remains that until a connection is definitely made between media violence and real life violence many including myself will remain against the censorship of entertainment. Works Cited Clinton to Hollywood Tone Down the Onscreen Slaughter March 13, 2001http://www.apbonline.com/newscenter/breakingnews/1999/05/15/clinton0515_01. html. June 6, 2001. Lynn Cheney blasts Gore comments on Media .