Authored By:

Prof. RUCHI MEHROTRA

MOHIT SUCHDEV
BADAL H JAIN

ALLIANCE BUSINESS SCHOOL
BANGALORE : 562 106
Presented To:

SAKTHI MARIAMMAN ENGINEERING COLLEGE
CHENNAI : 602 105
US BANKING FAILURES
RBI SAFEGUARDING INDIA
Overview of Research
Objective : Lessons learnt from US Bank Failures

Type of Study : Viewpoint based Descriptive,
Analytical
Type of Data Secondary Data : Mckinsey, KPMG
Survey Reports, RBI news reports
Findings
Cause and Effect of sub-prime mortgage crisis
Impact in US
Impact in India
Suggestions Ray of Hope
The most alarming aspect of the crisis - is the
that we are in an inter-regnum period
when the next President has been elected but
cannot act on the situation until after January
20, 2009 when he is sworn in.

How Sub-prime lead to Bank failure?
Sub-prime Mortgages.
Affects on the markets.

..The subprime mortgage crisis is an ongoing real-estate crisis & financial
crisis triggered by a dramatic rise in mortgage delinquencies and foreclosures
in the United States
Cause and effect relationship of Sub-prime Mortgage Crisis

As part of the housing and credit booms, the amount of
financial agreements called mortgage-backed securities
(MBS), which derive and obtain their value from mortgage
payments and housing prices, greatly increased.

Causes of the Crisis
Boom in the housing markets
Erroneous credit ratings
High-risk mortgage loans and lending practices
Credit default swaps
Financial institutions debt levels and incentives
Speculation
Securitization practices
US Balance of payments
Impact in the US.
Total home equity in the United States,
which was valued at $13 trillion at its peak in
2006, had dropped to $8.8 trillion by mid-
2008 and was still falling in late 2009.

22% fall in the Total retirement assets of the
US

According to IMF - U.S. banks lost more than
$1 trillion on toxic assets and from bad loans
by September 2009

Together in total US had a staggering loss of
$8.3 trillion.
The flow of capital coming to the Indian stock market will be
reduced.

Slowdown of the US economy effecting the rupee appreciation.

An indirect hit on the GDP growth rate.

A retarded growth in all the Industrial sectors.

Excess liquidity will vanish and the market will correct for the
price of risks.

in all a Huge crisis of confidence
"Further deterioration in sub-prime delinquencies could lead to reassessment
of risk by investors across products and markets and retrenchment of
capital from emerging market economies (EMEs)... in particular, global
financial market could turn volatile with attendant implications for EMEs
like India,"
- apex bank said in its Annual Report 2006-07.

SUGGESTIONS
Liquidity: Central banks should expand their
lending & money supplies, to offset the decline in
lending by private institutions and investors along
with a cats-eye view.
Those financial institutions which are facing risks
regarding their solvency, or ability to pay their
obligations should be handled pre-maturely the
crisis actually taking place. Alternatives involve
restructuring, take-overs, mergers or government
bailouts (i.e., nationalization, receivership or asset
purchases) to avoid total bankruptcy.
SUGGESTIONS
Governments can increase spending or cut
taxes to offset declines in consumer spending
and business investment.
Change in Regulatory regime: New or
reinstated rules, stringent mandatory
requirements designed help stabilize the financial
system over the long-run to mitigate or prevent
future crises.
Even Economic stimulus/bailouts can work like it
has practically worked for many sectors textiles,
gems & jewelry in India.

SUGGESTIONS
Banks should open mindedly adjust the
tenure/terms of mortgage loans to avoid
foreclosure, with the goal of maximizing cash
payments. Governments can also offer financial
incentives for lenders to assist borrowers. Other
alternatives include systematic refinancing of
large numbers of mortgages and allowing
mortgage debt to be "crammed down" (reduced)
in homeowner bankruptcies. So this Homeowner
assistance can be of great assistance for
defaulters as well banks NPAs.

Setting up of a powerful Financial Stability Board
(FSB), said the FSB was working on a framework
for the orderly resolution of bank failures which
could involve an agency or equivalent authority,
(almost similar to BIFR already in India).
Implementation of various Committee
recommendations on an expeditious basis.
Awareness about Deposit Insurance and Credit
Guarantee Corporation, owned by RBI, should be
made.

SUGGESTIONS
CONCLUSION
We can view this as a time when these
financial institutions need to approach
investment markets with caution. They
need to position their portfolios in a
more defensive stance and continue to
monitor closely to see what additional
moves can be made
BIBLIOGRAPHY
www.emeraldinsight.com/10.1108/eb024771
www.globalresearch.ca/index.php?context=va&aid=11117
www.rediff.com/money/special.htm
www.cci.gov.in/images/media/.../redone_20081201172134.pdf
www.ideaswebsite.org/ideasact/jan09/PDF/
www.indianeconomy.org/.../is-there-a-bubble-in-Indian-real-estate/
www.in.com/.../watch video-solution-to-subprime-mortgage-banking-financial-crisis
Theviewspaper, magazine
www.wikipedia.com/...
indianeconomy.org/.../china-v-India-some-random-numbers
www.businessworld.in/index.php/In-The-News/
www.mckinsey.com/reports/...
www.kpmg/surveyreports/








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