The term ‘global banking crisis’ generally refers to the financial turmoil that began in 2007 and continued through 2008, leading to the near-collapse of several large financial institutions and causing significant economic damage worldwide. The crisis was characterized by a complex set of factors, including a housing market bubble, excessive risk-taking by banks, and inadequate regulation.
The crisis began with a sharp decline in the value of mortgage-backed securities, which had been sold widely by banks as low-risk investments. As housing prices fell and borrowers began defaulting on their loans, the value of these securities plummeted, causing significant losses for banks and other financial institutions.
As the crisis deepened, some of the world’s largest financial institutions, such as Lehman Brothers and Bear Stearns, began to fail. This sparked a wider crisis of confidence in the financial system, leading to a freeze in lending and a decline in economic activity.
Governments and central banks around the world intervened to try to stabilize the financial system, with a range of measures including bailouts of failing banks, injections of liquidity into the banking system, and coordinated efforts to lower interest rates.
The crisis had far-reaching effects on the global economy, including a sharp rise in unemployment and a prolonged period of slow economic growth. It also led to increased scrutiny of the financial sector and calls for stricter regulation of banks and other financial institutions.
In the years since the crisis, there have been a number of reforms aimed at improving the stability of the financial system and reducing the risk of another crisis. These have included new regulations on banks and other financial institutions, greater transparency and disclosure requirements, and efforts to reduce the complexity of financial products.
While the global banking crisis of 2007-2008 was a painful and difficult period for the financial industry and the wider economy, it also served as a wake-up call for policymakers and regulators around the world. As a result, the financial system today is generally considered to be safer and more resilient than it was prior to the crisis, although ongoing risks and challenges remain.
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