Banking Industry – How Stable Is It?

Banking Industry - How Stable Is It?The latest economic crisis shook the financial world and alerted us to several ways in which the whole system needs to be shored up. With the banks and other financial institutions being responsible for over exposing themselves to bad debts, it showed that the banking system is much more fragile than was previously thought.

With toxic loans spiraling out of control, the banks became reluctant to release money into the financial system, creating a credit crisis. Those who had the money were no longer willing to grant loans and many who were reliant on credit to operate found themselves without the working capital that they needed. The toxic loans that economic establishments were exposed to were just too much for some and a few banks even found themselves being bailed out with enormous government packages, or going out of business completely.

In addition to the high street banks suffering, investment bankers were even hit by a plummeting stock market as investors looked to cash out their holdings. In addition to scandals and the revelation of unethical dealings, the whole system was close to collapse as the general public lost confidence.

Much has changed ever since the initial crisis. Financial establishments are now under much tighter rules regarding how they function and higher requirements are needed to now qualify for a loan. This might mean that fewer people can qualify for a loan, but this will assist in safeguarding the system as a whole.

This is not to say that the crisis is over yet. Several individual house owners are still affected by a poor economy and more foreclosures are yet to enter the system. A lot of foreclosures might mean another recession however government incentives are assisting in preventing a drop that is too large to handle.

Moreover, a number of the larger European economies such as Spain and Portugal are suffering very badly and the exposure of American banks in the European continent might be a major cause for concern if things do not improve there.

Just recently Fitch ratings, an organization that is held in high regard by individuals throughout the finance industry, has rated the American banking industry as stable, if slow. With the government now overlooking the banking system much more vigilantly to ensure that past mistakes of old are not repeated, whilst injecting stimulus incentives into the market, it’d appear as though there is a greater emphasis now on ensuring that everything is done correctly so as to better protect people and the economy from any weaknesses that the banking system might have.

As is to be expected, the banks’ earnings and revenues are down from before the crisis occurred but they’re rising once more.