Banking Crisis Revisited

Posted by Charlie on 4 October, 2011

LEVEL: UPPER INTERMEDIATE 

IMF warns of threat to global banking system

The e-lesson ‘Banking Crisis’ went out exactly three years ago, in September 2008. It described how share prices plummeted after the collapse of the US bank Lehman Brothers. Following a summer where we have witnessed similar volatility in the financial markets, the International Monetary Fund (IMF) has warned that the ‘global financial system is more vulnerable now than at any time since the 2008 financial crisis’. Once again, it seems the world is facing economic meltdown. Why?

According to the IMF’s latest ‘stability report’, banks are facing bigger risks. Debt is the main cause of concern and all eyes at the moment are on the Eurozone. The biggest fear is that countries with huge debts are simply unable to repay them. Do banks have enough money to bail out a country which defaults on its debt? No, say investors: banks do not have enough cash in reserve. In some circles, there is even talk of whether the Euro itself will survive.

We all rely on stability in the economy. In the United Kingdom, an independent commission has suggested that one part of a bank’s operations should be ‘ring fenced’, so that the investment part of the bank could ‘safely be allowed to fail’ without this causing the high street part of the bank to collapse. Critics say this will just make investors gamble even more with our money! This is a good time to have this discussion, since last month Switzerland’s giant UBS suffered a £1.5 billion loss due to a single rogue trading incident. The CEO has just resigned.

Gloomy days indeed for the economy, gloomy for the individual investor, as well as for the start-up company struggling to get a loan. It seems the same concerns of three years ago, fears of a global financial meltdown, still very much exist today.

Some areas you may wish to explore with your business English students are:

  • What do you feel are the specific causes of the current financial turmoil?
  • What financial predictions can you make for the crisis in the Eurozone?
  • Should the investment part of a bank be ‘ring-fenced’, to reduce risk?

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