Abstract
The global financial crises of 2007-2009 was followed by the Great Recession which was the worst since the Great Depression of 1930s. The crises left significant adverse effects on global growth and employment. Policymakers of affected countries responded differently to the outcomes of these crises. The central banks, including US Federal Reserve Bank and Bank of England, provided ample liquidity for the financial institutions and lowered the interest rate to near zero. The policymakers and regulators realized that capital inadequacy and insufficient liquidity of financial institutions were the main problems preventing the financial firms to protect themselves against major financial crises. In addition, lack of guidelines for compensations encourages managers to take the extra risks. The US Federal Reserve Bank took the initiative, in cooperation with international central banks to introduce rules and regulations to safeguard the financial systems against another major crisis. It is not guaranteed that another episode of financial instability will not happen again. However, with existing regulations on financial institutions in force, the severity of the crises on the whole global financial system may possibly become weaker. This is a conjecture we explore here.
Highlights
The global financial crisis 2007-2009 was followed by the Great Recession that was the worst after the Great Depression of 1930s
The policymakers and regulators realized that capital inadequacy and insufficient liquidity of financial institutions were the main problems preventing the financial firms to protect themselves against major financial crises
The Great Recession of 2007 followed the financial crises and again produced adverse effects on the global output and employment that lasted for long periods
Summary
Journal of Economics and Public Finance ISSN 2377-1038 (Print) ISSN 2377-1046 (Online). Capital Adequacy and Liquidity of Global Financial Institutions:. Mehdi Monadjemi1* & John Lodewijks School of Economics, University of New South Wales, Sydney, Australia 2 School of Economics, University of New South Wales, SP Jain Global, Sydney, Australia * Mehdi Monadjemi, School of Economics, University of New South Wales, Sydney, Australia. Received: October 31, 2019 Accepted: November 12, 2019 Online Published: November 15, 2019 doi:10.22158/jepf.v5n4p419
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