It just gives an understanding of the role of banking industry in financial crisis.

1. THE BANKING INDUSTRY
"LESSEN THE CONSEQUENCES OF
FINANCIAL CRISES: THE ROLE OF
THE BANKING INDUSTRY"
GROUP MEMBERS
Karishma Rathod
Mercy Bello
Sowjanya Jangam
Nadhira Narikodan
Varunavi Kylasa

3. CONTENTS
• Introduction
• Definition of Financial Crisis
• Bank's contribution to financial crisis
• Measures to lessen the consequences of crisis
• Case study
• Limitations
• Conclusion
Financial
Crisis

4. INTRODUCTION
FINANCIAL
CRISIS
A Financial Crisis refers to a disruption or breakdown in the
stability and functioning of a financial system, characterized by
severe disruptions in financial markets, institutions, and the
broader economy.
Definition of Financial Crisis
• Results from various factors such as
speculative bubbles, excessive borrowing,
asset price collapses, liquidity shortages,
and systemic risks
• It often involves a chain reaction of
events, including panic selling, bank
failures, credit freezes, and economic
contractions.
Key Aspects of Financial Crises.

5. Philip's Curve
• The Philip's Curve, crafted by
William Phillips.
• Proposes a consistent inverse
correlation between inflation and
unemployment.
• It suggests that as economies
expand, inflation rises, triggering
job creation and decreased
unemployment.
• However, stagflation in the 1970s,
marked by simultaneous high
inflation and unemployment,
challenged the theory's validity.

6. BANKS CONTRIBUTION
TO FINANCIAL CRISIS
• Risky loans
• Sub-prime Mortgage lending
• Risky financial instruments
• Lack of due diligence
• Excessive leverage
• Liquidity shortages

7. Measures to lessen the
consequences of crisis
The banking industry plays a crucial role in mitigating the consequences of a financial crisis by providing
essential financial support to businesses, individuals, and the overall economy, here in specific ways:
Banks increased lending to businesses: Banks can provide additional credit lines and loans to help
businesses maintain their operations, cover essential expenses, and bridge temporary cash flow gaps.
Flexible lending terms: Banks can offer flexible repayment schedules, lower interest rates, and extended
loan terms to alleviate the financial burden on borrowers.
Targeted lending programs: Develop specialized lending programs for industries that are
disproportionately affected by the crisis, such as tourism, hospitality, and small businesses. Example:
During the 2008 financial crisis, many banks extended credit lines to small and medium-sized enterprises
(SMEs) to help them maintain operations and manage cash flow challenges.

8. Measures to lessen the
consequences of crisis
Loan Forbearance and Deferrals
Loan forbearance: Banks can offer temporary relief by allowing borrowers to defer loan payments,
including principal and interest, for a certain period without penalties.
Mortgage relief: Provide mortgage payment deferrals or loan modifications to help homeowners facing
financial hardship avoid foreclosure.
Consumer loans: Extend grace periods or defer payments for personal loans, credit cards, and auto loans to
ease the financial strain on individuals.
Example: In response to the COVID-19 pandemic, several banks offered mortgage payment deferrals to
homeowners who faced job losses or reduced income, helping them avoid foreclosure.

9. Measures to lessen the
consequences of crisis
Capital Raising:
Support for businesses: Help companies raise capital through various means such as debt issuance, equity
offerings, and hybrid instruments to strengthen their financial positions.
Equity investment: Banks can facilitate equity investments or private placements to inject fresh capital
into struggling businesses and stimulate growth.
Financial Advisory Services:
Businesses: Offer financial advisory services to help businesses restructure their operations, optimize
costs, and explore alternative revenue streams during challenging times.
Individuals: Provide financial planning and counseling services to individuals to manage their personal
finances, reduce debt, and navigate the crisis effectively

10. Measures to lessen the
consequences of crisis
Liquidity Provision:
Maintain liquidity: Ensure banks have sufficient liquidity to meet depositors' demands and support lending
activities, preventing a liquidity crunch.
Central bank facilities: Utilize central bank facilities and emergency lending programs to access short-term
funding and maintain stability in the banking system.
Example: The Federal Reserve's provision of liquidity through its discount window during the 2008
financial crisis helped banks maintain adequate cash reserves and meet depositor demands.
Risk Management:
Strengthen risk assessment: Enhance risk management practices to identify and mitigate potential
vulnerabilities in loan portfolios and investment portfolios.
Stress testing: Conduct regular stress tests to assess the resilience of banks' balance sheets under different
economic scenarios, ensuring preparedness for future crises.

11. Case Study - 2008 Global
Financial Crisis
Amid the 2008 Global Financial Crisis, China's government and financial institutions adopted strategies to
counter its effects on the economy. Although China's resilient financial sector and cautious banking
approaches provided some protection, authorities still enacted measures to ensure stability and boost
economic growth. Here's how people and banks in China responded:
• Continued Lending
• State Intervention
• Support for Key Sectors
• Limited Exposure to Toxic Assets
• Stimulus Packages
• Enhanced Risk Management
Conclusion
In these case studies, banks and financial institutions responded to
crises by collaborating with regulatory authorities, implementing
reforms, enhancing risk management, and adjusting their business
strategies:
• Global Financial Crisis (2008)
• Icelandic Financial Crisis (2008-2009)
From what we can see banks can provide help in case there are
financial crisis, but they face several limitations.

12. Banks often face significant challenges and limitations when attempting to lessen the
consequences of a financial crisis. These challenges are influenced by various factors,
including the size and interconnectedness of banks, global economic conditions, and the
complexity of financial systems. Here are some key challenges:
• Size and Interconnectedness
• Global Economic Conditions
• Complexity of Financial Systems
• Liquidity Shortages
• Regulatory Constraints
• Market Contagion
Challenges and
Limitations

13. CONCLUSION
To conclude, financial crises arise from a mix of economic, regulatory, and market factors,
highlighting their complexity. While banks contribute and impact crises, the 2008 event
exposed their limited ability to tackle crises alone. Collaboration among governments,
regulators, central banks, and the broader financial landscape is essential. Global
interconnectedness emphasizes the necessity for coordinated actions to counter contagion
risks. Effective crisis management hinges on regulatory reforms, responsible banking
practices, and well-timed government interventions.