U.S Banking Industry - Essay Example

 Banks are financial institutions obligated to receive deposits from various organizations or individual customers or account holders then use such amounts to loan relevant customers. Through economically approved loaning schemes, banks may as well also contribute to the capital market. This work focuses on some of economical and political effects on the banking industry in the United States and its consequences in China. Banking sector benefits are majorly from the banking charges and the interests earned are repayment of any loans. Currently, the industry is enjoying some favorable factors like increases in population, good interest rates, advanced security, improved technology and increase in baking professionals among others. However, the U.S banking Industry is faced with some limitations like the 2008 global economic crisis, whose effects are still limiting the industry’s capabilities. Financial crisis as one of the major limitations in the current U.S banking industry can be defined insufficient finances to run ensure banking obligations. It comes in different types, currency crises, implies insufficient currency in a specific region. The banking industry is obliged f to transact in different or foreign currencies which might turn out to be costly. Bank crisis is the situation where a certain baking institution has insufficient funds to loan its customers among other banking obligations. The third type of financial crisis is the twin crisis, which is a combination of currency and bank crisis. Global financial crisis (2007) was a result of both economical and political influences. The political aspect was attributed when the U.S legislators or policy makers through President George W. Bush passed some financial bills, authorizing the U.S banking industry to loan U.S citizens and agencies willing to venture into the real estate business. The banking institutions had no option but to abide to such orders, hence they rendered unsecured loans without reasonable initial deposits. Things turned sour when the real estate agencies or loaned citizens failed to repay such loans in good time; hence they were declared loan defaulters (Morris, 2004). The U.S banking industry went short of funds to meet its statutory obligations. A few months later, the president made some announcements declaring the global financial crisis. Some remedies were to be put in place to rescue the situation and it is such remedies that compromised the banking sector not only in the U.S but in a global scale. Some of prompt remedies included U.S government directing some state funds to repay the loans formerly awarded to the real estate sector The banking industry since 2008, have engaged some strategies to recover such loans and make it recover to its former state. Some of these strategies have greatly discouraged several customers from seeking the U.S banking services. The U.S central bank through some financial agencies resolved in hiking interest rates to increase the baking industry revenue and recover some of the debts caused by the 2007 financial crisis. Several baking studies reveal that the majority of U.S citizens have resolved to alternative baking systems like companies’ cooperatives, insurance companies, asset management agencies as well as macro and micro finance institutions. Multilateral businesses have also resolved in baking in their respective countries whose interests and baking rates are still appealing (Goyal, 2007). However, the crisis hit the global economy and at least each country’s banking sector was affected, but the U.S banking interest hikes was to the extreme. The crisis led to closure of some banking facilities, leaving customers with few options but to crowd the remaining ones. Several regional and multinational businesses stopped or reduced their operations until the hiked banking rates goes down. This greatly compromised the banking revenue due to decrease in loan beneficiaries hence low revenues. The U.S banking industry had insufficient funds to meet national and international obligations like loaning of customers, pay for its employees and pay taxes among other expenses. President Bush ordered for a formation of a certain financial commission comprising chief economists and financial managers to produce the best solution for the crisis. First, the government had to direct some huge funds from the national treasury and fund some banking institutions. These too had some negative implications on the banking industry. Having deducted some huge amounts from the national treasury to settle the loans, the government had to pass some policies that would ensure hiking of State and federal taxes to recover such amounts. This greatly reduced the saving package of the civil servants and private practitioners since huge amounts were deducted from their salaries. The global financial crises affected the national economy and life suddenly became expensive. History records that it has been since 2008 that the housing costs shot by over 100%, to recover the debts that resulted from unsecured loans. However, the appointed committee produced a comprehensive report with some of the remedies to avoid occurrence of such crisis in the future. Their remarks included but not limited to: national legislators should not participate in the banking business since they do not have adequate economical or financial knowledge to make banking industry’s decisions. Secondly, banking industry should insist on reasonable initial deposits in any loaning scheme to limit the chances of the industry being short of finances. The U.S banking industry is facing stiff business competitions from other financial institutions like insurance companies, cooperatives and asset management companies among others. Business researches with regard to the U.S baking sector indicate that several micro-finance institutions and company cooperatives were established to attract more customers following the 2008 global financial crisis. They majorly target low scale business owners or lower economic class, who happen to be the majority in the country (Lessambo, 2009). Micro-finance institutions could be serving the low class business owners, but they turn up in huge numbers while banks may be serving large scale business entities but they are few, hence reduced revenues. The U.S constitution mandates all companies to form their respective cooperatives to be financial custodians to the employees among other stakeholders. The cooperatives are in a capacity to loan its members/ the company employees at very friendly or subsidized interest rates. This is a set back to the U.S banking sector since it tends to discourage employees from seeking bank loans among other services from the banking facilities. Several insurance companies have also been formed to attract several clients from the banking sector. The majority may opt to pay monthly or annual bonds to certain insurance companies so that he/she can be compensated in case of any risk. A good of U.S citizens have also opted to transform their monetary assets to tangible/solid assets to be kept or managed in asset management companies. The above discussed factors have negative implications on foreign baking sectors and this work would focus on China as a case study. China is one of the global economic giants due its massive national and multilateral business that contributes hugely to the capital market. China has ventured into electronic technologies, banking business, tourism sector, ceramic and garment business among other economical sectors. The China’s banking industry was greatly affected by the 2008 global financial crisis. Several Chinese companies were closed down or reduced their operations following the crisis. This implied reduced baking services like loaning and deposits in the country. China had a lot of multinational businesses in the U.S, but this changed when the U.S federal government hiked several taxes as a remedy to the 2008 global financial crisis. This forced such companies or businesses to be relocated to other countries despite lower demand. This has greatly reduced the amounts channeled to the Chinese banking sector. The crisis interfered with the global economy and this made life be generally expensive. Prices of global commodity like petroleum products were increased to increase the global capital. However, the salary packages of various Chinese were not increased. Increased expenditure without an increase in income would always reduce savings. The Chinese had less amounts to save in the banking institutions and the majority opted to register with the macro and micro-finance institutions which could accommodate such small savings. This reduced the Chinese banking industry’s customers. Chinese banking professionals moved to governmental or private institutions due to low pay in the banking sector. Greatest economists and financial managers moved to private sectors where they were guaranteed huge pays and job securities. The excellence of a certain economic sector is determined by the quality of its human resources, this means the Chinese banking sector faced a huge setback following evacuation of its qualified and highly trained professionals to other economical sectors. Since 2008, there have been reduced lending rates for the Chinese companies, banking institutions included. The U.S government gave its companies first priority with regard to providing cooperates loans. This led to the closure of several Chinese financial companies since they could not attain their debt capital to meet their obligations (Feldstein, 2007). However, the 2008 financial crisis has some positive effects on the Chinese banking sector. Several Chinese citizens closed their banking accounts with the U.S Financial institutions and registered with Chinese baking companies due to increase of banking charges and interest rates in the U.S. Several businesses also relocated to the China and this boosted the Chinese banking sector. To conclude several political and economical factors caused the global financial crisis in the U.S. Legislators passed some laws to enable the country’s banking institutions to provide some unsecured loans to the real estate sector. It later turned out that such loans could not be repaid, hence insufficient funds to meet the baking statutory obligations. This greatly affected the U.S and other countries’ baking industries. China closed major businesses following low or reduced loaning from the U.S banks. The China banking sector lost its qualified and highly trained economists and financial managers in government and private sectors following reduced pay following the 2008 financial crisis. However, it benefited from the crisis since major businesses relocated from U.S to China after U.S hiked its taxes and interest rates. Bibliography Feldstein, M. 2007. The Effects of Taxations on Multinational cooperations. USA: University of Chicago. Goyal, A. 2007. Banking Business Environment. New York: FK Publishers Lessambo, F. 2009. Taxation of International business. USA: iUniverse Morris, T. 2004. Innovations in banking: strategies and employee business. USA: Routledge. Read More