EU Level Banking and Supervisory Structures to the Financial Crisis (Coursework Sample)

EU Level Banking and Supervisory Structures to the Financial Crisis
EU-Level Banking and Supervisory Structures to the Financial Crisis
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Discussion
European economies felt the effects of the global financial crisis of 2007-2009 from 2007-2009. The crisis had its origins in the United States. U.S. bank profits dropped as a result of the financial crisis caused by the default on subprime mortgages. Since large European lending institutions had mostly adopted similar business structures before to the financial crisis, economies in the European Union were hit particularly hard (Burke, 2016). Since then, a number of nations and auditing organizations have demanded that the European Union reevaluate its approach to supervising and regulating financial institutions in the region. The suggested policies address the banks' liquidity, capital, and corporate structure. All of these methods, and how effective they are, are discussed in this paper. It also examines how well the European Union's banking and supervisory structures handled the debt crisis (Habermas & Cronin, 2012).
To combat the economic downturn, the European Union (EU) increased its commitment to policy coordination and alignment. This was made possible by the European Union's Parliament and Council enacting the "Six-pack," a package of laws based on economic governance. Stability, Growth, and Pact (SGP) were strengthened by this package, particularly in the area of fiscal policy (Govaere, Lennon, Elsuwege, Adam, & Maresceau, 2013). As of May 2013, a new set of laws known as "the two-pack" had taken effect. The two-principal pack's goals were (1) to improve budgetary system coordination via an overview of deadlines for fiscal operations in the eurozone, and (2) to strengthen financial and economic surveillance in the eeurozone by increasing monitoring of member states with severe financial instability (Olsson, 2009).
Since the pre-crisis framework failed to address the debt crisis in a timely manner, the financial crisis served as a stark indicator of a significant shortcoming in the financial services sector. The European Union established new authorities to oversee financial institutions in order to prevent further financial failures from occurring. The European Banking Authority (EBA), the Systematic Risk Board for Macro-prudential Supervision (SRBMS), and the European Insurance and Occupational Pensions Authority (EIOPA) were among these institutions (Wymeersch, Hopt, & Ferrarini, 2012). To further improve the efficacy of monetary measures, the council also pushed for consolidation of financial institutions. Additional essential foundations have been approved by the Union, such as the Capital Standards Directive (CRD), which establishes stricter reasonable requirements for financial institutions (Jackson, 2010).
Benefits from the EU's banking and supervisory frameworks are becoming apparent, and another banking crisis is not predicted for the near future. That being said, the European Union's banking and supervisory mechanisms have proven to be sufficient in the face of the financial crisis. The union is working toward the goal of preventing the recurrence of the debt crisis by implementing new policies. The economies of the European Union are implementing new government structures to improve the coordination of budgetary and economic policy. The European Commission will keep a careful eye on how the new plans are being implemented and how well certain economies are doing (Sharma, 2014).
References
Burke, J. (2016). Weathering the Storm, Volume Two: The Financial Crisis and the EU Response(1st Ed.). New York: Business Expert Press.Govaere, I., Lannon, E., Elsuwege, P., Adam, S., & Maresceau, M. (2013). The European Unionin the world (1st Ed.). Martinus Nijhoff Publishers.Habermas, J. & Cronin, C. (2012). The crisis of the European Union (1st Ed.). Cambridge, UK:Polity.Jackson, J. (2010). Financial Crisis: Impact on and Response by the European Union (1st Ed.).Diane Publishing.Olsson, S. (2009). Crisis management in the European Union (1st Ed.). Berlin: Springer.Sharma. (2014). Global Financial Contagion: Building a Resilient World Economy after theSubprime Crisis (1st Ed.). Cambridge University Press.Wymeersch, E., Hopt, K., & Ferrarini, G. (2012). Financial Regulation and Supervision: A postcrisis analysis (1st ed.). OUP Oxford
Numerical calculations
* Net Present Value at 10%
Year

Project X

PV at 10%

Project Y

PV at 10%

Cost

0

-70,000

-70,000

-70,000

-70,000

Cash Inflows

1

10,000

9,091

50,000

45454.55

2

20,000

16,529

40,000

36363.64


3

30,000

22,539

20,000

18181.82


4

45,000

30,736

10,000

9090.91


5

60,000

37,255

10,000

9090.91


NPV at 10%

46,150

48,182




* Profitability index
Profitability Index = (NPV + Initial investment) ÷ Initial Investment
Project X

Project Y

Initial Investment

70,000

70,000

NPV

46,150

48,182

Total

116,150

118,182

Profitability Index

1.659

1.688

Internal Rate of Return of the two projects.
Cost

Year

Project X

PVIF at 25%

PV at 25%

PVIF at 30%

PV at 30%

Cash Inflows

0

-70,000

1.0000

-70,000

1.0000

-70,000

 

1

10,000

0.8000

8,000

0.7692

7,692

 

2

20,000

0.6400

12,800

0.5917

11,834

 

3

30,000

0.5120

15,360

0.4552

13,655

 

4

45,000

0.4096

18,432

0.3501

15,756


5

60,000

0.3277

19,661

0.2693

16,160

NPV at 10%


 

 

4,253

 

-4,903

IRR = 25% + [(4253 * (30-25)/(4253-(-4903)]= 27.32%Therefore IRR for Project X is 27.32 percent.
Project Y
Year

Cashflow

Year

PVIF AT 35%

PV at 35%

PVIF

PV at 40%

Cost

-70,000

0

1

-70,000

1

-70000

Cash Inflows

50,000

1

0.7407

37,037

0.7143

35714.29

 

40,000

2

0.5487

21,948

0.5102

20408.16

 

20,000

3

0.4064

8,129

0.3644

7288.63

 

10,000

4

0.3011

3,011

0.2603

2603.082

 

10,000

5

0.2230

2,230

0.1859

1859.344

NPV at 10%