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Finance & Accounting
Pages 12 (3012 words)
Risk management Contents Contents 2 Global Financial crisis 3 Role of financial engineering: derivative products were a risk management device 4 Interconnectivity between operational risk, credit risk and systemic risk 7 Role of Governance and non-regulatory compliance 9 Role of ISO31000:2009: creating an environment of resilience in the global economy 11 References 14 Global Financial crisis The global financial crisis started with the deterioration in the performance of the housing markets in the US.
This created a bubble in the housing finance sector and mortgage properties. Investment banks and other financial institutions started to lend money to the mass of people as well as corporate houses for purchase of land or other business purposes. The land and housing properties were kept as mortgage serving as underlying securities for those loans. These loans were granted to the borrowers without looking at repayment feasibility of the loans or without carrying out adequate evaluation of the credit parameters. The credit parameters like income of the borrower, assets available to service the loan, existing liabilities, etc. were ignored by the financial institutions in the mortgage loans. This led to the inflation of the bubble in the housing sector which developed earlier. The bubble finally burst as the borrowers were unable to repay the loans and the defaulters in the mortgage loan market started to become heavy. This led to the devaluation of the mortgages which served as underlying securities. ...
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