Investment bank Vs. Commercial banks
Many factors directly and indirectly caused the ongoing 2007–2012 global financial crisis which started with the US subprime mortgage crisis. One of the main culprits that is often pointed to as one of the main triggers of the global financial crisis are the mortgage derivative products, where risky mortgages were packaged with more traditionally secure mortgages and sold to corporate investors and other banks as secure investment products. This packaging of mortgages is generally accepted to have masked the real risks that were linked with such a product, which gradually grew as lending criteria were loosened in the first five or six years of the twenty first century. These products were created by one group of people who have been vilified more than any other industry over recent years, which are the bankers. The investigations that have been carried out by politicians and government in the aftermath are still proceeding , but there is no doubt that some of the blame for the crisis has to lie with them, and the way in which they packaged and sold the mortgage derivative products. From the factors summarized above, it can be said that bankers should take a large of responsibilities of promoting the financial crisis. Actually the financial crisis also counter-evidenced that there were some problems in bank operations. For the investment banks: firstly, they lacked investing conservatism principal. Managers of many large and midsize financial institutions amassed enormous concentrations of highly correlated housing risk, and they amplified this risk by holding too little capital relative to the risks and funded these exposures with short-term debt. They assumed such funds would always be available. Both turned out to be bad bets. Secondly, the appraisal of investing risks was inadequate. Excess liquidity, combined with rising house prices and an ineffectively regulated primary mortgage market, led to an increase in...
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