Spillover Of The Us Subprime Loan Crisis To Australia In Relation To The Banking Industry

4012 words - 16 pages

Topic: Spillover of the US Subprime Loan Crisis to Australia in Relation to the Banking IndustryWhat is the subprime loan crisis in the US? What were the causes of the crisis and how did it affect the US banking industry? How and why will the crisis spread to the banking industry of other countries? Did the crisis spill over to the banking industry in Australia? In what way and how? Provide evidence on this by examining the share prices of the US and Australian banking industries and how the share prices were impacted by the sub-prime crisis.What is the U.S. sub-prime loan crisis?To properly understand what the US sub-prime loan crisis is, it is necessary to understand what a sub-prime loan itself, actually is. Essentially a sub-prime loan, also known as a second chance loan or B loan, is one that is offered to borrowers with a low credit rating or a credit score generally below 620 (on a scale from 380 to 850). These loans are agreed upon with a higher interest rate as the risk for lenders is much greater than normal prime loans. This is due to the borrower's lower income, poor repayment history and overall probability of default. Often these loans are also made with no deposit, no verification of income and interest only payment plans, making them incredibly risky borrowers. Borrowers are happy to accept the higher interest rate in order to own their own home and assume that the price of their home will appreciate and they will gain equity in the market. As a result of this, home ownership in America has risen to 69%.The difference between traditional loans and sub-prime loans is illustrated below:Source: BBC News.comLenders originally took on these types of loans due to government regulations through the Community Reinvestment Act 1977. This legislation encouraged lenders to be attentive to the needs of minority neighborhoods and graded the lenders accordingly. Banks were therefore making increasingly risky loans in order to gain an advantage over their competitors and keep the government on side. If they did not partake in these sub-prime loans then they faced financial penalties, however accepting such loan meant that chances of default were much greater (News Network). Inevitably a lose, lose situation.In current times lenders are more satisfied to take on such loans as they receive higher rates of interest and believe that property values will appreciate so they will still make money even if the borrower defaults on the loan because the property will be reposed and sold. The lenders then also repackage these loans and sell them to Wall Street firms, banks, investment houses, pension and hedge funds as mortgage backed securities (MBS) or collateralized debt obligations (CDO) all over the world. In doing this the lenders then gain more money to loan and further reduce their risk (Financial Independant).To then explain the sub-prime loan crisis it is important to note that all parties involved including investors in the mortgage backed...

Find Another Essay On Spillover of the US Subprime Loan Crisis to Australia in Relation to the Banking Industry

The Role of Behavior in Relation to Learning

1128 words - 5 pages In modern psychology, learning is an important topic. To understand learning, one must also understand the role of behavior in relation to learning. In psychology, classical conditioning, and instrumental conditioning are two types of learning that explain changes in behavior. The relationship between learning and cognition is necessary and their relationship helps to understand learning. With a definition of learning along with an

The Cabinet Of Dr. Caligari In Relation To German

1849 words - 7 pages The Cabinet of Dr. Caligari' in relation to German Expressionist film. Robert Weine's 1919 film, 'The Cabinet of Dr. Caligari', is recognised to be a staple and seminal example of the sorts of characteristics found in German Expressionist cinema of this period.Although the film was made near the end of what is often referred to as 'The Expressionist Decade' (1910 - 1920), it is also considered to be the film that first applied an

EFFECT OF LIQUIDITY RISK TO FINANCIAL PERFORMANCE IN MALAYSIA BANKING INDUSTRY

1667 words - 7 pages 1.0 Overview of Study This study is examines the empirical relationship and effect between liquidity risk and profitability performance in Malaysia banking industry. Liquidity risk is an important aspect of the banking risks. This riskiness of its portfolio and operations usually will straightforwardly vary a bank’s profitability. According to Matthews and Thompson (2008), liquidity risk refers to the likelihood inability of a bank to convene

The Bible in Relation to Slavery

2345 words - 9 pages it has changed things cultural. The importance of why slavery and the Bible are connected is to look at how it is part of social justice. In order to grasp the relation, the origins of movement have to be brought to light for all to understand. It is known by most that slavery exists in the Bible, but that it justifies the act is not correct. In fact it has the opposite effect. The stories found in exodus, for example, have been the

The Psychoanalytic Perspective in Relation to Iago

942 words - 4 pages ). In Shakespeare's play, "The Tragedy of Othello," a critic might want to use the psychoanalytic approach to help understand Iago. To do this, one might look at the characters and their wants, needs, and desires. The will also look at the character relationships to help come up with a psycho-analysis for the characters. The main goal of this approach is figure out why the characters are the way they are, and make assumptions about why they acted

The Relation of famous books to Bible

3561 words - 15 pages where he might have come in contact with Buddhists and Hindu Saints. If we compare Bible and Bhagavad Gita, it is not a hard task to find similarities. Let us look at a few examples. In Hinduism, Krishna is the main person or God such as Jesus Christ In bible. His teachings are based on the book Bhagavad Gita. There are many striking similarities as well as differences between the life of Krishna and Jesus. The Gospel of John chapter 1 verses 1

How the bush is represented in Australia and America by Les Murray's poetry and the film "of mice and men"? This essay is about the representations of both texts in relation to the above question.

1535 words - 6 pages life in Australia in the 1950's as a place of isolation. They portray the hard labour, daily duties and everyday loneliness of the bush life. They describe the values of the bush life. These values are the men work while the women stay at home and do the house chores. Most people are related in the same bush area because people do not want to move into city area so they stay in the same area. They also show the value of the natural habitat with the

Rotten to the Core: Good vs. Evil in relation to Golding's "Lord of the Flies"

692 words - 3 pages importantly, though, they learn that instinct is not rewarded. Instinct, in a child, is an impulse... it is kicking and screaming and misbehaving. It is not tolerated. Instinct is not good; it is evil. But, what causes a child to act on his or her evil tendencies? The answer lies in the book of Psalm, the intellect of Freud, and the under-developed brains of children.In the Holy Bible, the story begins in the Garden of Eden. Inside this garden

The Changing Banking Industry in the Twentieth Century

3392 words - 14 pages this and by evaluating the circumstances given to us by Porter, it is difficult to tell where the power rests when it comes to the bargaining power of the buyer. The bank seems to have some of the power on its side but not enough to have control of the customer. The customer is truly the center of the banking industry and it seems as if the banks are aware of this. They have to continue of offer personalized service that is convenient to the

Overview of the Recent Financial Crisis in the US

1705 words - 7 pages 1. Introduction The financial crisis started in the USA because of subprime mortgage crisis in 2007. As a consequence of it, a credit crunch was originated and it quickly spread from the real state sector to other sectors, and furthermore, from USA to other countries. This caused a series of financial and economic crises like the collapse of housing markets in Europe, the global stock markets, global financial systems and markets, along with a

How Are We To Assess Gender In Relation To The Formation Of Identity?

1580 words - 6 pages masculine woman who society, while maybe not agreeing with her principles, did not see her gender as a reason to keep her out of a very male dominated world. Identity, I believe, is the way that not only we see ourselves but ultimately the way others and society at large see us too. The formation of gender in our early years, the years between say birth and 16, will govern the way our identity is shaped. Our identity includes such diverse

Similar Essays

The Role Of Credit Rating Agencies In The Subprime Mortgage Crisis

1338 words - 5 pages becoming more likely by the end of the year that a financial crisis was imminent: the amount of subprime and collateralized debt obligation (CDO) losses had surpassed US$120 billion and were expected to increase in 2008 (Gaffen, 2008). As economic conditions turned from bad to worse investors, academics and practitioners began to wonder how such a crisis could have been precipitated in the first place. Blame was placed on mortgage originators

The Banking Crisis In Cyprus Essay

1793 words - 8 pages Introduction The banking crisis in Cyprus resulted in economic instability in the country. This prompted for rapid measures by the government, the central bank and the European Union in general. Various policies were implemented to counter the effects of the crisis. The adopted policies were designed to restore financial stability (Weisenthal 2013). Government policies The government of Cyprus was swift in the introduction of policies that

Alternatives To The Banking Concept Of Education

1932 words - 8 pages damages caused by the banking approach. With the advent of new teaching practices and democratic educational structures, many people are feeling empowered to pursue their endeavors in academia. We must make changes to the current banking approach to education used by the majority of the population because better alternative education systems exist.Revolutionary individuals have created a vast spectrum of choices in alternative education over the

The Banking Industry Essay

924 words - 4 pages Banking In addition to the myriad of career options that exist in the world, there are issues that present complications for professionals in those fields. As a Christian, it’s essential to develop a biblically appropriate approach in response to the various issues that manifest themselves in the professional world. The banking industry is an example of a career with manifest issues. Banking is the heart of every modern society’s economy, and