Collapse of European banks to trigger global recession
Wednesday, 8 October 2008
From Fazle Rashid
NEW YORK, Oct 07: The emerging markets took a severe battering yesterday as bourses around the world slipped to an all time low in a decade. The nations in Asia, South America and Europe are gripped by fear that the collapse of the banking system in Europe will trigger a global recession that would precipitate a steep slowdown in the growth.
The countries which considered themselves to be out of the problems raging in the US and Europe finally fell. The turmoil in the US and Europe was too much to bear. The potential of a global economic recession is awakening in the emerging markets that they will soon be hit stronger than they anticipated earlier, New York Times (NYT) reported. The stock markets in Australia, Japan, Hong Kong, Indonesia and Pakistan recorded a drop.
The selling spree swept through the markets notwithstanding the fact that governments in Europe have pledged not to allow a single bank to fail. Trading temporally came to a halt at many places. The World Bank President, Robert Zoellick sounded a stern warning saying crisis in the US and Europe could prove a tipping point for developing countries as sharp decline in exports and worsening credit situation led to collapse of corporate giants. It has surprised experts in the US and Europe that even strong back-up by government initiatives has failed to calm down the volatile financial markets. The International Monetary Fund (IMF) has pledged to come forward with concrete plans to stave off the crisis.
The Summit level meeting of the European leaders in Paris further fuelled fear of a total economic collapse. The crisis that began in the US has spun out of control in Europe. The wide coverage in the media has also added fuel to the fire. The fear contagion is making thing worse. Asian banks are better positioned than most others to withstand the pressure because of the high saving rates of the region. Asian banks are net lenders in the international monetary market, NYT quoted an analyst as saying.
Europe's big cross border banks find themselves trying to conserve capital by cutting lending to local business. Bank of America halved its dividend and is ready to sell at least $10 billion worth of new stocks to bolster its capital base. The recessionary condition forced the bank to announce its new plan. A crucial meeting to draw out plans to meet the crisis is billed for today in New York. Fed will hold a meeting with banks and others involved in the financial market to discuss the progress being made toward the creation of a central counterparty for credit default swaps.
This would help reduce risk associated with counterparty credit exposure and improve how the failure of the major participant would be addressed. Meanwhile, a Federal enquiry team has come out with report stating the US Securities and Exchange Commission (SEC) had failed to bring under discipline its director of enforcement and two supervisors for their role in handling an insider trading investigation that led to the dismissal of commission's lawyer for trying to interview an influential Wall Street executive.
The NYT quoted SEC's Inspector General as saying that he had found evidence that raised serious questions about the impartiality and fairness of the SEC. There is a furore in the Wall Street about Fed government denying Lehman Brothers the financial support it sought whereas help was provided to AIG, who sought support long after Lehman Brothers.
NEW YORK, Oct 07: The emerging markets took a severe battering yesterday as bourses around the world slipped to an all time low in a decade. The nations in Asia, South America and Europe are gripped by fear that the collapse of the banking system in Europe will trigger a global recession that would precipitate a steep slowdown in the growth.
The countries which considered themselves to be out of the problems raging in the US and Europe finally fell. The turmoil in the US and Europe was too much to bear. The potential of a global economic recession is awakening in the emerging markets that they will soon be hit stronger than they anticipated earlier, New York Times (NYT) reported. The stock markets in Australia, Japan, Hong Kong, Indonesia and Pakistan recorded a drop.
The selling spree swept through the markets notwithstanding the fact that governments in Europe have pledged not to allow a single bank to fail. Trading temporally came to a halt at many places. The World Bank President, Robert Zoellick sounded a stern warning saying crisis in the US and Europe could prove a tipping point for developing countries as sharp decline in exports and worsening credit situation led to collapse of corporate giants. It has surprised experts in the US and Europe that even strong back-up by government initiatives has failed to calm down the volatile financial markets. The International Monetary Fund (IMF) has pledged to come forward with concrete plans to stave off the crisis.
The Summit level meeting of the European leaders in Paris further fuelled fear of a total economic collapse. The crisis that began in the US has spun out of control in Europe. The wide coverage in the media has also added fuel to the fire. The fear contagion is making thing worse. Asian banks are better positioned than most others to withstand the pressure because of the high saving rates of the region. Asian banks are net lenders in the international monetary market, NYT quoted an analyst as saying.
Europe's big cross border banks find themselves trying to conserve capital by cutting lending to local business. Bank of America halved its dividend and is ready to sell at least $10 billion worth of new stocks to bolster its capital base. The recessionary condition forced the bank to announce its new plan. A crucial meeting to draw out plans to meet the crisis is billed for today in New York. Fed will hold a meeting with banks and others involved in the financial market to discuss the progress being made toward the creation of a central counterparty for credit default swaps.
This would help reduce risk associated with counterparty credit exposure and improve how the failure of the major participant would be addressed. Meanwhile, a Federal enquiry team has come out with report stating the US Securities and Exchange Commission (SEC) had failed to bring under discipline its director of enforcement and two supervisors for their role in handling an insider trading investigation that led to the dismissal of commission's lawyer for trying to interview an influential Wall Street executive.
The NYT quoted SEC's Inspector General as saying that he had found evidence that raised serious questions about the impartiality and fairness of the SEC. There is a furore in the Wall Street about Fed government denying Lehman Brothers the financial support it sought whereas help was provided to AIG, who sought support long after Lehman Brothers.