FİNANSAL PİYASALAR VE KURUMLAR - Deneme Sınavı - 3

The financial crisis which broke out in the US real estate market in the second half of 2007 became a global crisis in 2008 with the bankruptcy of “Lehman Brothers” in September 2008. The crisis has brought a serious recession in the economies of almost all countries worldwide and finally in Europe. The global crisis resulted in serious increases in public deficits and debt stocks in the  European Union (EU) countries and became a threat to sustainability of public finances in many member states.

The Basel Committee on Banking Supervision (BCBS) is the primary global standard setter for the prudential regulation of banks and provides a forum for regular cooperation on banking supervisory matters.

Regulatory frameworks in regarding financial institutions utilize:
• Disclosure requirements (disclosure of financial statements and relevant information)
• Deposit insurance
• Capital requirements
• Supervision
• Assessment of risk management
• Restrictions on competition

Global pandemic crisis

The common feature of all types of financial crises is that they have significant fluctuations in financial asset prices (or exchange rate) and unsustainable economic imbalances.

Financial crises are usually caused by the following factors (Mishkin and Eakins, 2012):

• Mismanagement of financial liberalization • Asset Price bubbles or booms, meaning market prices of assets realized above

economic values
• High uncertainty, usually following

economic downturns or stock market

crashes
• Current account deficits
• Budget deficits
• Excessive borrowing of government
• Excessive borrowing of businesses
• Vulnerability or fragility of banking

industry

Economic downturn

1873

Ponzi finance is a type of financial fraud based on the principle of continuous fund raising from newcomers to the system.

Diminishing credits

On 30 November 1930, the “Economic Depression Tax Law” was accepted.

During Turkey’s currency crisis in 1994, output fell 6 percent, inflation rose to three- digit levels, the Central Bank lost half of its reserves, and the exchange rate (against the U.S. dollar) depreciated by more than half in the first three months of the year.

Tier 1: A term used to describe the capital adequacy of a bank. Tier I capital is core capital; this includes equity capital and disclosed reserves.

Systemic financial crises are defined as financial distortions that have significant effects on the real economy by preventing the efficient functioning of financial markets (IMF, 1998, p.74-75).

Tier 2: A term used to describe the capital adequacy of a bank. Tier II capital is secondary bank capital that includes items such as undisclosed reserves, general loss reserves, subordinated debt of five years.

The main objectives of imposing financial regulations are as follows (Llewellyn, 1999):

to sustain systemic stability,

to maintain the safety and soundness of

financial institutions,

to protect the consumers.

In this process, Turkey experienced both an economic and financial crisis at the same time facing the due date of the debt rollover problems. The payments system collapsed and the securities and money markets transactions stopped, especially because the state banks could not fulfill their obligations in the money markets (BDDK, 2009, p.3).

The crisis that started in the banking sector on November 22, 2000 turned into a currency crisis on February 19, 2001 and took on the character of twin crises.

The main reasons for the 1994 and 1998 crises were (BDDK, 2010).:

existence of the unsustainable debt burden in an economic atmosphere, where there was high and volatile inflation and unstable growth performance

structural problems, especially financial markets, which could not be resolved permanently

Financial crises are associated with four deadly D (economic downturns, revenues down, debt, downgrade). They are generally followed by banking crises, sharp economic collapses and downturns in public revenues.