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CHANGE IN BANKING AND SUB-PRIME CRISIS
MS.SUSMITA BHAUMIK
In recent years the banking system in America and some west European countries have undergone sea changes.
The present crisis of fall in share market prices/money market collapse/bankrupts of great names like Lehman-Brothers, Fanny Max or Fredy Mac have caused a devastating effect all over the globe and India is not out of its perview.
To understand the events, better let us understand what has actually happened, how it happened and also why of it. Then we may try to find out a scientific and economic way to get over the crisis, if at all we can.
As I said in the starting that the conventional role of banks have changed in the recent past. Traditionally banks used to be an agent between givers and takers. A group of people wanted to keep money in the bank- the depositors, at a fixed rate of interest, which was again variable from category to category. Let us call this group as “ givers”.
There is again another group of people who will be willing to take loans for various purposes- again at a definite rate of interest from the banks. The purposes of loans are very varied and wide. It may be for industrial purpose to housing loans, cars, education loans etc. let us call them “takers”.
Inn the conventional banking system, there was no need for the giver and the taker to meet. Banks would complete these formalities and the givers money would pass to the takers without either of interacting at individual level. The banks would charge interest on the taker at higher rates than the giver. By this they would be able to payback agreed rate of interest to the giver and also keep a margin of profit for themselves.
In order to e ...