Should the Activities of Banks Be Regulated to Avoid Another Global Recession?

The 2008 financial crisis is one of the worst world crises since the great depression of 1933. The tragedy that is also referred to as the global financial crisis was caused and perpetuated by issues of the legalization of high-risk mortgage loaning from the United States of America. Moreover, the precipitation factor became a high default rate in a subprime home mortgage sector, which was promoted by the enactment the Community Reinvestment Act of 1977. The law allowed and gave permission to the less fortune city dwellers to get mortgage loans. Subsequently, some of the high-risk loans were then sold and bundled culminating to quasi-government agencies such as the Freddie Mac and Fannie Mac (Boyd & Tompkins, 2012 p. 12). Therefore, the financial crisis emerged when some of the loans were bundled and formed into new financial instruments called mortgage-backed securities that could be sold ostensibly as low-risk securities in an underwritten way.

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The difference existing between the banks is that investment bank is a bank that purely raises funds for business due to their participation and involvement to public. Retail shop on the other side, retail banking refers the division of banks that deal with the customers directly. High Street banks are large retail banks which have many branch location meaning, major, widespread financial institution. On the other hand, Private banking is individualized financial and banking services that are traditionally offered to a bank's wealthy individuals (Cassis, Grossman, & Schenk, 2016 p. 56).

HSBC stand for Hong Kong and Shanghai Banking Corporation. HSBC means Hong Kong and Shanghai Banking Corporation. It is a public banking institution located in the United Kingdom that was established by Thomas Sutherland engineered its existence. The original mandate of the company was to assist with financial needs on matters related to trading.

HSBC is a multilateral business entity with around six thousand officials in seventy-one countries across the continents, and that is Africa, Europe, Asia, North, and South America with approximately sixty million customers available in those continents (Boyd & Tompkins, 2012 p. 12). The corporation is organized with four business groups that are, the global banking and markets also called investment banking, global private banking, as well as retail banking and wealth management. Recently, the company registered a remarkable improving totaling to 102.7 billion Euros making it the second-largest company listed on the London stocks exchange immediately after the Royal Dutch Shell (Aisen, & Michael, 2010 p. 28).

Imperatively, to avoid recession, we need to understand that the solution lies in doing it ourselves, coming up with possible strategies and ideas to regulate our financial institutions in the best way possible especially in handling that mortgages. With the incident of the 2008 financial crisis, it is evident that even the too big to fall cannot make it or withstand the test when the globe is faced with an intense recession (Mcneil, Frey, & Embrechts, 2005 p. 24). The following are some of the feasible ideas that can help regulate the activities of the multilateral banks such as HSBC to avoid recession in the future.

Firstly, doing it ourselves, we require the entire community to address detrimental system, maintaining resilience, and inspire people to participate in better alternatives. Moreover, following the fact that allocation of mortgages was the cause of the whole crisis as in the case of the United States of America, where the precipitation factor became a high default rate in a subprime home mortgage sector (United States, Levin, & Coburn, 2011 p. 25). The above statement is an awakening call to the different management of the various multilateral financial institution to offer excellent management skills to avoid a repeat of that in the future.

Corrective and resilience maintaining policies should be formulated in different economic sectors to impede recession, especially in investment banking. Similarly, to realize change or regulation, the policies should not just be formulated but implemented and enforced. Finally, formulation of strategic plans for awareness creation of malpractices in the financial sector that area especially in the high-risk sector to make people shy away from such activities and in turn avoid recession.

In conclusion, allocation of loans such as a mortgage is a very critical banking service offered by the financial institutions. Furthermore, its positive effect is felt not only by the loanee but also to the global economy. However, its misuse also poses a great danger and threat to the economy. Therefore, this calls for a prudent operation in this sector of mortgages by the financial institutions such as HSBC to avoid recession.

Reference list

Aisen, A. F., Michael. (2010). Imf working papers: bank credit during the 2008 financial crisis. [Place of publication not identified], International Monetary Fu.

Boyd, E., & Tompkins, E. L. (2012). Climate change: a beginner's guide. Oxford, Oneworld Publications.

Cassis, Y., Grossman, R. S., & Schenk, C. R. (2016). The Oxford handbook of banking and financial history

Helleiner, Eric. The Status Quo Crisis: Global Financial Governance After the 2008 Financial Meltdown. , 2014. Print.

Nanto, D. K. (2009). The global financial crisis: analysis and policy implications. Darby, Pa, Diane Publishing.

Mcneil, A. J., Frey, R., & Embrechts, P. (2005). Quantitative risk management: concepts, techniques and tools. Princeton, N.J., Princeton University Press.

United States, Levin, C., & Coburn, T. A. (2011). Wall Street and the financial crisis: anatomy of a financial collapse. New York, Cosimo Reports.