Banks are a significant influencer in national and global economies as they possess and control a large amount of money. National or public banks can control the supply and demand of money through interest rates, the amount of reserve funds required and other methods. Adjustment in such rules are usually done in response to government policies and economic requirements and thus, it can be said that most governments have a strong influence in national economies through national banks.
Banks make money through different tools and financial products. Most of them involve using the money deposited into banks by the public to make investments, give loans and sell financial products to get the public to contribute to their chosen investment portfolio. Banks trade and invest in millions and they control a large volume of international finances. They are probably the only kind of corporations that can give out rental bond loans Brisbane loans in the millions. As banks can affect economies with different loan rates and regulations, governments and global financial organizations have to define certain standards to ensure that banks do not collapse.
The world paid a heavy price during the 2008 American mortgage crisis as banks were too lax with giving out loans, causing them to lose a lot of money from customers that defaulted on their loans. The reason for the 2008 mortgage crisis is said to be greed as American banks were blatantly giving out loans without checking if borrowers were capable of paying them back.
As the housing prices were inflated, many people eventually defaulted on their loans. Banks began to collapse and fold as they ran out of money, plunging the global economy into a crisis as many foreign economies were closely tied with that of America’s. The mortgage crisis had a ripple effect on foreign banks and subsequently, weaknesses in global economies began to surface, causing countries such as Spain, Greece and Portugal to go into recession.
Learning from the lesson of the crisis, powerful financial institutions are now more tightly monitored by governments, economists and international financial organizations to ensure that banks adhere to the recommended level and standard of operation. Such guidelines mainly control the level of risk that banks can take and ensures that they maintain a minimum balance so that they have sufficient funds to cover any unintended losses. Banks have to be especially careful with business loans and commercial finance products as they tend to involve large amounts of money and are subject to volatile business conditions.
Banks are very powerful institutions that have to be managed by the best professionals because they can influence global economies and halt economies. They have to be constantly checked and monitored to identify possible loopholes and weaknesses early. Due to fluctuating economic conditions, banks have to remain flexible and implement rules and policies that respond to the economic situation. As there are no definite answers in making such decisions, the banks can only rely on the valued experience of professionals to make the right call.