Student name: Oanh Thi Hoang Nguyen Page

ID: 000620648

Topic

Impact of Credit Crisis on International / Global

Businesses
1. Introduction
The economic recession in 2007 2010 which is known as the world
economic crisis; began in US and impacted seriously on many areas of the
US economy and spread rapidly to others economics on over the world.
(Keeley and Love 2010) state that the crisis occurred firstly in developed
countries and then spread through developing countries. In addition,
financial crisis and credit crisis may be the representative issues of the
economic downturn that contribute to the collapsed of many major
businesses; decreased in customer riches as well as delayed in economic
activities. Moreover, credit crisis has become a global issue that the world
has been experienced during the downturn period. It was the main causes of
decreasing values in real estate; and growing foreclosure and default
advance rates. These issues make the businesses hard to borrow the loans
for development. Thus, they have to cut costs in order to survive during the
tough time. Furthermore, many banks also have an impact from this crisis.
An example of this is Union Bank of Switzerland (UBS) those loss 19 billion
dollars in mortgage-backed (Jorion 2009).
The centre of global crisis often start majority in developed countries; such
as, in mid 2007, the housing boom and mortgages in the US. The financial
crisis at US has become one of the most serious issue of global economic in
many areas as (currency crisis, insurance, securities, banking) from 2007
until at the present (in 2010) .But we has only researched about banking
which include collapsing in a vast number of series banking system, hunger
credit, depreciation, stock market crash and currency devaluation in many
countries around the world. The current economic crisis has widespread

Student name: Oanh Thi Hoang Nguyen Page

ID: 000620648

global and triggered by a liquidity loss in the system of bank. The series of
company has been bankruptcy and economic has a significant decreased in
economic as well as consumer goods. Moreover, (Jorion 2009), states that
the damages of credit crisis in 2007-2010 are unprecedented which have
been over $4,000 billion of the US assets (The International Monetary Fund IMF) and its causes are many. In addition,

(Melvin and Taylor 2009) also

content that there have been many studies that indicate causes, threats and
opportunities of the credit crisis.
In the global economy, about 30 percent depend on US market has been
enough to prove when the credit crisis occurred at the US have a strongly
influence rather some another countries in the worldwide (Corden.W 2009).
(Eichengreen 2009) states that the crisis showed lack of transparency,
supervision in the macroeconomic and microeconomics policies in financial
of wealthy countries.
This paper will seek the root causes of credit crisis focus on banking crisis. It
also considers the impact of credit crisis on global business.

2. Crisis analysis
2.1.

Definition of credit crisis

A credit crisis is suddenly reduction in the availability of loans

A credit crisis is marked by the inability to procure and provide credit.
Characteristics of a credit crisis on behalf of the banks include an inability to
issue loans, collect on amounts due and receive sufficient collateral for
defaulted loans. During a credit crisis, consumers and businesses cannot
afford to pay off loans or receive a mortgage, auto or business loan. Large
companies need loans, too: Without large business loans, many cant have
healthy cash flows critical to maintaining day-to-day business operations

Student name: Oanh Thi Hoang Nguyen Page

ID: 000620648

A credit crisis is clearly by the inability to supply and consumer credit. Banks are a system of
cash flows but suddenly it is freezed and the bank where is lack of the large number credit.
According to the Council of Economic Advisors (1991), credit crunch is "a situation in which the
supply of credit is restricted below the range usually identified with prevailing market interest
rates and the profitability of investment projects
credit crunch specifically refers to a reduction in the available supply of credit. During a period of
credit crunch, lenders become reluctant to lend either because of funding problems stemming
from disintermediation, or because regulators have urged credit restraint (Bernanke 1993)

Apple has managed to survive this current financial crisis resulted over the last years. The company has survived
because of a few new products, new alliances and good business decision making.
A credit crisis is a reduction in the general availability of loans (or credit) or a sudden tightening of the conditions
required to obtain a loan from the banks. A credit crunch generally involves a reduction in the availability of credit
independent of a rise in official interest rates. The credit crisis is caused by banks being too nervous to lend money to
us, businesses or each other. That means low interest rates and pain for investors as stock markets fluctuate wildly
and, in the worst cases, people face repossession and bankruptcy. The crunch occurred because years of lax lending
inflated a huge debt bubble as people borrowed cheap money and ploughed it into property.

Many economists studying the credit crunch explain it as a cyclical decline in credit demand.
They often suggest that the cyclical swing is reinforced by structural changes in the demand
for credit. These economists have minimized the numerous important factors that have
reduced the ability of banks to supply credit or, at a minimum, have increased the cost of
providing it. (Clair and Tucker 1993)

2.2.

Causes of credit crisis and what is crisis of bank?

The root causes of credit crisis

No one is sure how long the slowdown will last. Many U.S. consumers have spent
beyond their current income by borrowing on credit and the fall in the value of
their homes may make them reluctant to continue this pattern in the future. One
reason the economic slowdown could get worse is that banks and other lenders
are cutting back on how much credit they will make available. They are rejecting
more people who apply for credit cards, insisting on bigger deposits for home
purchases, and looking more closely at applications for personal loans.

In the U.S., many undergraduates take out federal guaranteed loans and
cover their financial needs with private loans from lenders, such as Bank of
America, JP Morgan Chase and Citi-Group. During the academic year 20052006, $17 billion in private student loans was used to finance higher
education

Student name: Oanh Thi Hoang Nguyen Page

ID: 000620648

1.1.1 Reason: Nearly a century ago, American had created in finding new
way and made appearance of credit cards. It showed that customer can buy
goods whenever and pay soon after. A short time ago, the
American loan the bank compare with the value of

majority of

homes. (Clyde and

Wilson February 2009).In other hand, The habit of consumers at US had

already spent money which beyond further than their income by their forced
must loan credit of bank.
According depositor , they felt not enough to believe banks and they want keep their money it in
hand.

1.1.2 How is the banking crisis?

Banking crisis has defined as a lack of credit or money when there are too many
depositors came withdrawal of bank at the same time, as the result, Banks didnt have
ability to pay back several clients ever since they have got back borrower a loan of their
fund .This factor influence the economy that concerns production and consumption
There was a commotion of market that arisen from credit crisis in US subprime,
mortgages; and it influences to other markets (IMF 2008). During the period of 2004 to
2006, the interest rates increased from 1 percent to 5.35 percent; resulted in downturn
housing market in the US (BBC 2009)
The subprime housing mortgages in US, which are increasing uncertainty prepared
credit affected their liquidity to lead on difficulty in the asset-backed viable report.
Illiquidity has spread to other markets quickly. (IMF 2008). The subprime lending is rates
greater categorization of loan than the rate normal individuals who havent enough
standard loan. It has based on many factor as income, assets and credit rating. In
addition, a large number of

financial institutions of developed countries in Europe

involved in the credit markets in the United States in the secondary. . Hence, when the
market were collapsed in the United States and has involved many European countries
were the most severe financial is the UK, Iceland, Ireland, Belgium and Spain
1.2 Tnh hnh ph sn ca cc ngn hng

Student name: Oanh Thi Hoang Nguyen Page

ID: 000620648

while decided increase interest rates of bank for mortgages and house prices is
dropping off; result as too many cannot afford repay money which their mortgages.
Some banks didn't want lend to each other in that situation and the prediction has been
advance credit markets freeze (BBC 2009)
+ The global banking group largest in the world is BNP Paribas said that they not
able to take money from their funds, one of them "completely disappeared of liquidity" in
the market and they sorry investors about it (BBC 2009)
(Clyde and Wilson February 2009) said that the impact of direct on subprime lenders
have popular for many firms and financial institutions. The number of seller larger than
buyer in housing market at the US . Losses are felt by investment banks as far afield
as Australia. Firms cancel sales of bonds worth billions of dollars, citing market
conditions (BBC 2009).
1.3
there are many efforts from The US Federal Bank and the European Central Bank for
supporting the money markets by supplying funds for banks as well as reducing interest
rate in order to boost lending.
International Monetary Fund role has rescue the economic institution (Nakamae and
Jacoby 2008)
+ The US Federal Reserve has spending billions of dollars in order to help
leading central banks in the world (BBC 2009)
III/ Impact
Asian Sector
During 2008 year, the credit crisis had evaporated about half in total capital in the
worldwide. Besides that, the collapse of finance sector had lead to the crisis of real
economy;a series big firm, corporation are standing by bankruptcy. Most of the rate of
GDP has declined and that is the reason of shrink in export market.
In addition, Foreign Director Investment also dropped off strongly from 1500 billion
dollars in 2007 to below 1000 billion dollars in 2008 and only about $ 500 billion in 2009.

Student name: Oanh Thi Hoang Nguyen Page

ID: 000620648

The finance system has serious problem as soon as investor become panic and most of
loss chance.
It is difficult to do new project in this crisis time; most of money will be focus on main
companies according to transnational companies.

Europe Sector

The slowing US housing market, coupled with rising US interest rates, has
meant fewer sub-prime customers have been able to keep up with mortgage
and loan repayments