Impact of Credit Crunch on Financial Markets - A Round-up
The financial crisis that originated in United States sent feelers to all the major economies around the globe. The financial industry in the US is the worst affected. Many corporations have closed down some of their units. Some are also awaiting financial help in form of government bailout money. Finances have gone haywire and people are striving to get them back on tracks. In fact, there are a couple of firms that declared bankruptcy. The credit crunch hit the stock markets rather badly. It affected not only the banking sector but also the non banking sectors. The banks think twice before lending and are exercising increased caution prior to lending in an attempt not to repeat the anomalous lending practices that led to the subprime mortgage crisis.The
How grave is the credit crunch?
- As many as 18 federally insured banks failed in the U.S.
- As per reports furnished by American Federal Deposit Insurance Corporation, the country’s thrifts and banks have lost approximately USD$32.1 billion in the last quarter of 2008. In fact, in 18 years this is the 1st quarterly deficit. It is in sharp contrast to the profit made in the Q4 of 2007 which amounted to USD$575 million.
- The American International Group (NYSE:AIG) declared that it lost as much as USD$61.7 billion in Q4 2008. It has been recorded as the “largest corporate loss” that ever took place in history.
- Stock markets are still volatile and there is a lot of uncertainty ruling the arena there. The Dow Jones industrial average (in United States) nosedived below 6,800 (as of March 23rd 2009). This is the lowest recorded since May 1997. It lost almost 50% from the highest level that it achieved in October 2007. There is a positive side though. On March 23rd 2009, U.S. stocks rallied strongly when the government announced its plan to clear bad bank assets. The 3 indices registered an increase of 6.5%.
- Nikkei index of Tokyo registered the lowest level ever attained in 26 years.
- The FTSE 100 index of London also recorded a 6 year low.
- It was expected that the world economy will be shrinking between 0.5% and 1% in the year 2009. If it does it will be the 1st contraction in the last 60 years (as per reports furnished by the International Monetary Fund).
- The last 3 months of 2008 witnessed the Euro contracting by 1.5%. Owing to liquidity crunch, failing exports and retreating investments, the euro zone is becoming volatile too.
With the continuing credit crunch, investor sentiments are badly hit and consumers have become extra cautious and are not keeping any stones unturned to save money. Reports also suggest that in some states in the U.S. insurance policyholders are ready compromise on adequate coverage and are opting for the minimum insurance coverage.