What were the consequences of the financial crisis?

The Governments across the world have had to introduce new rules and guidelines to stop the Banks from putting the country at risk.



Some Banks are now partly owned by the people,( taxpayers ) RBS 85% owned by us.



One of the rules that has had a big effect on Banks is around capitalisation. This means that the bank have to have more money in their balance sheet. What Banks do is take deposits from customers, borrow money from other banks/countries, and then they lend this money to people in the form of loans and mortgages etc. Previously the rules were quite relaxed, so Banks could lend more money than now. This is based on Basel II.



Basel II is the second of the Basel Accords, which are recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision. The purpose of Basel II, which was initially published in June 2004, is to create an international standard that banking regulators can use when creating regulations about how much capital banks need to put aside to guard against the types of financial and operational risks banks face. Advocates of Basel II believe that such an international standard can help protect the international financial system from the types of problems that might arise should a major bank or a series of banks collapse. In practise, Basel II attempts to accomplish this by setting up rigorous risk and capital management requirements designed to ensure that a bank holds capital reserves appropriate to the risk the bank exposes itself to through its lending and investment practises. Generally speaking, these rules mean that the greater risk to which the bank is exposed, the greater the amount of capital the bank needs to hold to safeguard its solvency and overall economic stability.



So the rules mean the Banks either need to lend less, or borrow more, or get more people to put their savings in with them, or they will be outside these rules and get told off.



This has meant that the Banks are being much more careful about who they lend money to, and how much.



Especially when it comes to small business lending. The Banks are being heavily criticised for not lending money to small businesses.



However, there are other problems. Banks are responsible to shareholders to make a profit, and therefore need to be careful not to lend money they can't get back. During a recession, or economic downturn, it is far more risky to lend money. Also, many businesses are reducing their borrowing, and very few are expanding, so they don't need to borrow the money. So the Banks are being told off for not lending enough money. But they won't lend it to businesses that are too risky, and the businesses that are a good risk don't want to borrow any money.



This has led everyone to be careful about their spending. One way of getting out of a recession is to spend your way out of it. Labour tried to do this, but have left us with a huge national debt.



So the consequences are that we are all going to have to suffer to sort this out. Public spending cuts which will affect us all.



First time buyers will struggle to buy a home.



Higher unemployment.



The rich will get richer and the poor will get poorer. That's what happens, the wealthy make more money during a recession as they pay lower wages, make redundancies that they can blame on the economy, so they stay rich!!What were the consequences of the financial crisis?You aint seen nothing yet!What were the consequences of the financial crisis?much loss of jobs