Global Credit Crunch Essay Example | Topics and Well Written Essays - 2000 words

Global Credit Crunch - Essay Example The overall financial solutions to UK clients thus would be greatly affected. (CEBR, 2008)1 Therefore it is necessary to find necessary solutions to various aspects of present global credit crisis to strengthen the UK economy. The global credit crunch has had the attention each and every human being for bad reasons. The present crisis has effected in job lay offs around the world mostly in the developed countries like USA, the UK, Japan, etc. As mentioned earlier, one of the root causes was excessive lending by the banks to the customers. In other words, the banks and other financial institutions lured the customers to borrow loan without any hassle such like low interest rates, 24 hours approval of loan, pay the installments after one year, etc. Such were the schemes offered by various banks to attract the wide range of customers mainly from housing sector.2 The banking authorities didn't even bother to check the liability of the person to whom they are lending, whether the person was able to pay back the money. The Bishop of London quoted in the Daily Telegraph that 'it is becoming clearer how far we have been mortgaging our children's tomorrow to fund our today, both financially and in our use of the finite resources of earth'.3 Looking at the past experiences of financial crisis occurred during the last millennium, it can be assumed that the process of borrowing from the financial institutions will be a Herculean task. The need to restore capital ratios and to recover the losses incurred, it is understandable the borrowers will have lesser flexibilities, less leverage, hike in interest rates and fees will soar at historical high. (John L. Moscione : p.6)4 The customers will have to face a strict scrutiny of their valuable documents before receiving loans as a process to identify previous lack luster performance by the bank officials. Implications for Lending The present crisis is the result of irregularities by the bank and financial institutions in providing loans to the customers without proper verification of their documents and checking the liability of the person. Excessive liquidity with the financial institutions was the foundation for excessive lending by the banks to rake in more customers. In a bid to acquire more customers, they offered lucrative schemes which were spontaneously grabbed by the seekers. Credit crisis was inevitable in view of real estate market boom in recent years which blew the bubble by way of irregular mortgages, unverified loans without scrutinizing the income or assets of the borrower. This facilitated borrowers to indulge in fraud and leveraging of accounts. Most of the loans were approved on the house mortgage which was another cause for real estate boom all over the world. Selling and buying of houses were on spurge, with rates touching the all time high. According to statistics from the Bank of England, total net lending to individuals in January 2009 was 1.1 billion which was lower as compared to December 2008 that stood at 2.1 billion. The total net lending secured on dwellings was 0.7 billion in January 2009 as compared to 1.8 billion in December 2008.5 It is learnt from the