If financial institution were to enter into bankruptcy as a result of controversial practices, this will no doubt cause wide-spread panic as people start to question the safety of their finances. Also, this loss of confidence can inflict further negative externalities upon the economy. Do you agree with this assertion? Please discuss.
Senior Lecturer, Economics, UNN
Dr Anthony Orji is a Ph.D holder in Economics and a lecturer at the Department of Economics, University of Nigeria Nsukka.
He obtained his B.Sc, Msc and Ph.D Degrees from the University of Nigeria, Nsukka and a Post Graduate Diploma in Sustainable Local Economic Development (SLED) from Erasmus University, Rotterdam Netherlands.
Name: ALI CHUKWUEMEKA JAPHET
Reg. No: 2017/242427
Dept: Economics (major)
When financial institutions begin to take uncalculated risk in their practices , it will definitely lead to wide – spread panic as people begin to question the safety of their hard earned finances.
As we all know, trust is the foundation of anything worthwhile.
Trust facilitates transactions with customers. Customers do not have to worry about their personal interests being taken care of, their savings with the bank, and the financial products they have bought or plan to purchase from the bank.
When trust is lost among the financial institutions, maybe due to past experiences, customers will never want to risk their finance thus causing a negative externality in the economy. How?
When customers fail to deposit their money in the banks, there won’t be enough money available for those that would be needing loans for investment. When investment is low, it leads to low output in the economy.
Financial institutions should do all within their power to ensure that they maintain a good reputation among the public.
Name: Ijara Peter Elochukwu
Department: Economics
Reg no: 2017/249513
Email address: petochris86@yahoo.com
Practices which are unethical in the finance sector can lead to widespread panic and distress in the economy. If financial institutions become insolvent people begin to worry if their finance are safe and a loss of confidence ensue.
Many factors lead to a loss of confidence in financial institutions ranging from poor corporate governance culture, poor regulations and supervision, adverse economic situation, fraud, high and rising inflation rate and bankruptcy. When this occurs customers start withdrawing their funds from banks which further deepens insolvency and results in bank failure which has an adverse effect on the economy. In addition when people loose confidence in FIs and withdraw their funds financial institutions are left with no funds that would be used to expand businesses and firms that will boost key sectors of economy,create employment opportunities and speed up production.
Loss of confidence in financial institutions also leads to bank failure and crisis. Demand-deficit unemployment is also a negative externality of lack of confidence in financial institutions that leased to high unemployment because of firm’s inability to expand, people don’t have money to back their demands and so firms record low sales which ultimately forces them to reduce production and retrench some more worker plunging them into unemployment.
In conclusion loss of confidence in financial institutions has numerous negative effects on the economy and should be avoided at all cost. Better practices among financial institutions will help in curbing this vice.
ame: Ijara Peter Elochukwu
Department: Economics
Reg no: 2017/249513
Email address: petochris86@yahoo.com
Practices which are unethical in the finance sector can lead to widespread panic and distress in the economy. If financial institutions become insolvent people begin to worry if their finance are safe and a loss of confidence ensue.
Many factors lead to a loss of confidence in financial institutions ranging from poor corporate governance culture, poor regulations and supervision, adverse economic situation, fraud, high and rising inflation rate and bankruptcy. When this occurs customers start withdrawing their funds from banks which further deepens insolvency and results in bank failure which has an adverse effect on the economy. In addition when people loose confidence in FIs and withdraw their funds financial institutions are left with no funds that would be used to expand businesses and firms that will boost key sectors of economy,create employment opportunities and speed up production.
Loss of confidence in financial institutions also leads to bank failure and crisis. Demand-deficit unemployment is also a negative externality of lack of confidence in financial institutions that leased to high unemployment because of firm’s inability to expand, people don’t have money to back their demands and so firms record low sales which ultimately forces them to reduce production and retrench some more worker plunging them into unemployment.
In conclusion loss of confidence in financial institutions has numerous negative effects on the economy and should be avoided at all cost. Better practices among financial institutions will help in curbing this vice.
Name: Edochie Praise Ifeoma
Department: Economics Major
Reg no: 2017/249492
Email address: Edochie80@gmail.com
Blog-http//www.praiseepitome.wordpress.com
Unethical practices in the finance sector can lead to widespread panic and distress in the economy. If financial institutions become insolvent people begin to question the safety of their finance and a loss of confidence ensue.
Many factors can lead to a loss of confidence in financial institutions ranging from poor corporate governance culture, poor regulations and supervision, adverse economic situation, fraud, high and rising inflation rate and bankruptcy. When this occurs customers start withdrawing their funds from banks which further deepens insolvency and results in bank failure which has an adverse effect on the economy. In addition when people loose confidence in FIs and withdraw their funds financial institutions no longer have access to funds that would have been used to expand businesses that will create employment, boost key sectors of economy, speed up production.
Loss of confidence in financial institutions also leads to bank failure and crisis. Demand-deficit unemployment is also a negative externality of lack of confidence in financial institutions that leased to high unemployment because of firm’s inability to expand, people don’t have money to back their demands and so firms record low sales which ultimately forces them to reduce production and retrench some more worker plunging them into unemployment.
In conclusion loss of confidence in financial institutions has negative externalities on the economy that should be avoided at all cost and can be avoided by better practices among financial institutions.
Name: Edochie Praise Ifeoma
Department: Economics Major
Reg no: 2017/249492
Email address: Edochie80@gmail.com
Unethical practices in the finance sector can lead to widespread panic and distress in the economy. If financial institutions become insolvent people begin to question the safety of their finance and a loss of confidence ensue.
Many factors can lead to a loss of confidence in financial institutions ranging from poor corporate governance culture, poor regulations and supervision, adverse economic situation, fraud, high and rising inflation rate and bankruptcy. When this occurs customers start withdrawing their funds from banks which further deepens insolvency and results in bank failure which has an adverse effect on the economy. In addition when people loose confidence in FIs and withdraw their funds financial institutions no longer have access to funds that would have been used to expand businesses that will create employment, boost key sectors of economy, speed up production.
Loss of confidence in financial institutions also leads to bank failure and crisis. Demand-deficit unemployment is also a negative externality of lack of confidence in financial institutions that leased to high unemployment because of firm’s inability to expand, people don’t have money to back their demands and so firms record low sales which ultimately forces them to reduce production and retrench some more worker plunging them into unemployment.
In conclusion loss of confidence in financial institutions has negative externalities on the economy that should be avoided at all cost and can be avoided by better practices among financial institutions.
Ugwoke Cornelius Esomchi
2017/249581
ANSWERS
A Loss of confidence in financial institutions can be necessitated by many factors like poor corporate governance culture exemplified in poor management, poor regulations and supervision, adverse economic situation, fraud, high and rising inflation rate etc. High inflation reduces consumers ability to save and confidence in financial institutions. Political instability is a very strong determinant of the confidence of customers in financial institutions. During the June 12 1993 annulled presidential election there was massive withdrawal of funds from banks in Nigeria.
The loss of confidence in financial institutions bring negative externalities on the economy in the following ways
▪️ When there’s loss of confidence in financial institutions customers will start withdrawing their funds from bank and this will ultimately result in bank crisis and failure. The Great Recession of 2008 was a bank related crisis. As a result of giving credit home loan to the poor it left banks in the US without enough cash this resulted in an all time low in the USA’s GDP in this timeline.
Furthermore, when there’s bank crisis intending lenders can say goodbye to loans because banks would not want to lend to businesses or will set a very high requirement for acquiring loans. This in turn will result in a drop in employment since firms want to be able to financially support their employees but won’t be able to. Firms won’t be able to purchase modern machine and technology to speed up production, this ultimately slows output and economic growth.
Consequently because of the lower employment rates, people don’t really have money to save in financial institutions and banks.
So lost of confidence in the financial institutions create negative externalities like demand-deficit unemployment, because of the high unemployment rate resulting from firms inability to expand, people don’t have money to effect their demand, so the demands of firm’s goods drops further leading to lower firm revenue so firms are left with no choice but to retrench some more employees.
The Loss of confidence in financial institutions can reduce the number of banks available for use, since it may result in bank failure.
In conclusion the loss of confidence in the Nigerian financial institutions affect the economy negatively.
Name: Okoye Amblessed Amarachi
Reg No: 2017/249560
Dept: Economics
If a perceived tendency of bankruptcy occurs in a financial institution say a commercial bank, there would definitely be a loss of confidence from the customers. The effects of this loss of confidence can be seen through the following:
1. Loss of customers and investors by the financial institution (Banks).
2. Withdrawal of funds and investment portfolio from the institution by the customers.
3. Decreased savings rate.
4.Decreased investment tendencies.
5. Slow and crippled growth rate.
6. Bedridden macro economic development.
Name:Eze Udoka Chidiebube
Reg no:2017/242428
Dept:Economics
Level: 300level
As to the consequences of bankruptcy, they are unfortunately disappointing, but that is due
because our legislation is aimed not at overcoming the crisis but at the liquidation of the company.
Socio-economic consequences of bankruptcy in Nigeria
1 Decline in GDP. Decline in the production volume of industrial and other products causing a GDP decline
2 Decreased supply of goods and services in the market causing the increase in imports.
3 Decline in innovation and capital investment volumes
4 Reduced tax revenues from companies (income tax, excise tax, etc.)
5 Reduced funding social and cultural spheres due to reduction in tax revenues.
6 Reduced jobs causing increase in the unemployment rate
7 Formation of a negative multiplier effect
–The unhealthy drive for deposit in the banking sector has pushed many banks into unethicalpractices, thereby resulting in high-level corruption cases in the banking sector.
It encompasses banks, securities firms, insurance companies, mutual fund organizations, investment banks, pensions funds, mortgage lenders—any company doing business in the financial arena. Because of its vast size, the industry tends to garner lots of headlines, many of which tout its ethical lapses.
Self-interest sometimes morphs into greed and selfishness, which is unchecked self-interest at the expense of someone else. This greed becomes a kind of accumulation fever. “If you accumulate for the sake of accumulation, accumulation becomes the end, and if accumulation is the end, there’s no place to stop,” the deliberate effort aimed at obtaining unlawful advantage at the hurt of another individual who is the true possessor of the store. Awosanya, widely defined fraud as any deliberate action in whatever configuration, written, spoken, physically designed to deprive a legitimate owner or his or her asset, property or right. Osborne, defined fraud as a means of obtaining material advantage by unfair or wrongful means involving certain moral responsibilities.
Banks operate on the pivot of public confidence and faith in the ability of the bank of delivering as and when demanded the Nigeria society is poisoned with the desire to become rich fast so as to feel important, as they behave that wealth is the measure for power and importance. It is in the realization of these facts that those get rich quick minded set of people steer their attention to defrauding the banks.
Fraud has caused the loss of large sums of money, contributing to the liquidating of several banks and consequent unemployment and similar troubles. This work is therefore beset by the actuate problem of finding out the genesis and cause of fraudulent act in the banking industry the magnitude of fraudulent practices in the police records remains worrisome, and this has made a partial paralysis on the base of the stem of the Nigeria banking system.
Chigbata Franklin Chigozie
Economics
Franklin.chigbata.242424@unn.edu.ng
2017/242424
The word Bankruptcy is the legal status of a human or a non-human entity (a firm or a government agency) that is unable to repay its outstanding debts to creditors.When an organisation is unable to honour its financial obligations or make payment to its creditors, it files for bankruptcy. If financial institution ( eg. Bank) enter into bankruptcy due to controversial practices, this will cause panic and loss of confidence among the customers of financial institutions. The customers will question the safety of their finances. This financial institutions ( banks) deals with finance (money)
When there’s loss of confidence in financial institutions customers will start withdrawing their funds from bank and this will ultimately result in bank crisis and failure. The Great Recession of 2008 was a bank related crisis. As a result of giving credit home loan to the poor it left banks in the US without enough cash this resulted in an all time low in the USA’s GDP in this timeline.
Furthermore, when there’s bank crisis intending lenders can say goodbye to loans because banks would not want to lend to businesses or will set a very high requirement for acquiring loans. This in turn will result in a drop in employment since firms want to be able to financially support their employees but won’t be able to. Firms won’t be able to purchase modern machine and technology to speed up production, this ultimately slows output and economic growth.
Consequently because of the lower employment rates, people don’t really have money to save in financial institutions and banks.
So lost of confidence in the financial institutions create negative externalities like demand-deficit unemployment, because of the high unemployment rate resulting from firms inability to expand, people don’t have money to effect their demand, so the demands of firm’s goods drops further leading to lower firm revenue so firms are left with no choice but to retrench some more employees.
The Loss of confidence in financial institutions can reduce the number of banks available for use, since it may result in bank failure.
In conclusion the loss of confidence in the Nigerian financial institutions affect the economy negatively.
Asika joy ogechukwu
2017/242025
Economics dept
joy.asika.242025@unn.edu.ng
Bankruptcy is a legal proceeding involving a person or business that is unable to repay their outstanding debts. The bankruptcy process begins with a petition filed by the debtor, which is most common, or on behalf of creditors, which is less common. All of the debtor’s assets are measured and evaluated, and the assets may be used to repay a portion of outstanding debt.
When a bank fails, it may try to borrow money from other solvent banks in order to pay its depositors. If the failing bank cannot pay its depositors, a bank panic might ensue in which depositors run on the bank in an attempt to get their money back. This can make the situation worse for the failing bank, by shrinking its liquid assets as depositors withdraw cash from the bank. Since the creation of the FDIC, the federal government has insured bank deposits up to $250,000 in the U.S.
Often times, the masses are not aware of this bank deposit. They believe that once a bank goes bankrupt, that they would lose their money entirely. Though this premise has elements of truth because, more often than not, the individuals who store their money in the banks lose their money.
Once people lose their trust in these institutions,the tendency to store money again in other financial institutions is low. Nobody wants to hear tales concerning their money, so once a bank has issues, people pull their money and become unwilling when it comes to saving their money again. This negatively affects the circular flow of money in an economy,
Name: ASOGWA Arinze GODWIN
Reg no: 2016/235173
Department: Economics
Yes I agree to this assertion. The role of financial institutions is to provide liquidity to the economy and permit a higher level of economic activity than would otherwise be possible. If banks should run short of liquid which might have occured maybe during banking crisis. There will be a fall in funds available for investments as banks will be very reluctant to lend money out. Bankruptcy can reduce the growth of investment there will therefore be a general increase in the rate of unemployment prevailing in the county and the general consumption level that is when investment is low, employment is low and income is low.
Some of the challenges faced by financial institution are customer retention, security breaches, increasing competition.
NAME: Anachuna Cynthia Chisom
REG NO: 2017/249481
EMAIL: chisomcynthia4247@gmail.com
Yes I agree that when the financial institution enter into Bankruptcy, it will lead to widespread panic. And people will start to lose confidence in the financial institution, consumers will start to fear that their savings are not safe in the Bank. They will also switch to cash savings and not Save their money in the Bank. It will also lead to a decline in funds for investment. If Banks are short of liquidity, they will no longer be willing to lend money to firms and consumers. In particular, Banks will no longer be willing to lend to businesses which are taking risky investments, therefore, Firms who need to borrow money to finance investment, will find it difficult to get a satisfactory loan. As a result of this, firms will reduce investment and now employ fewer workers. So you could say that it will lead to a fall in the level of investment, which will lead to fall the level of employment therefore a fall in economic growth.
Name: Agbo Jennifer Amarachi
Reg No: 2017/249476
E-mail: jenniferamarachi.agbo@gmail.com
Yes, I do agree and affirm with what have been stated above. If banks should run short of liquid which might have occurred maybe during banking crisis, there will be a decline in funds available for investments as banks will be reluctant to lend investors. As a result, firms who found it hard to borrow from the bank, will reduce their investment levels. As a result, they will be pushed to cut down on their level of productivity, this will lead to a point where they lay off and retrench workers or even employ fewer workers and then pay those currently in the firm lower salaries and wages.
What consequences will this bring? Well, whenever banks go bankrupt, there will be a general increase in the rate of unemployment prevalent in the country, general consumption level will reduce thus, there will be a slowed down growth of the Country’s GDP.
Another implication is that the Country’s general Economic confidence will reduce. Citizen or consumers will tend to be more risk averse, that is, they will prefer to increase their savings and reducing spending since there is a lower risk in doing such. Moreover, if they fear that keeping their money in banks will not be safe, they will go ahead keeping most of their money idle as cash. This is why investment will reduce because lower money/loans will be available for those in need of them.
Overall, a Banks crisis which leads to liquidation and bankruptcy poses a detrimental effect to the Economy at large, because when funds are not provided, investment will be reduced, unemployment will increase, poverty and inequality will be increased and more especially a slower and lower Economic growth of the country concerned.
Name: Sunday Emem Mfon
Reg no: 2017/242429
Department: Economics
In an economy, Governments affect the progress of the financial institutions which also affects the everyday lives of people in that economy. Government regulations affects the financial services industry in many ways, but the specific impact depends on the nature of the regulation. Increased regulation typically means a higher workload for people in financial services, because it takes time and effort to adapt business practices that follow the new regulations correctly.
While the increased time and workload resulting from government regulation can be detrimental to individual financial or credit services companies in the short term, government regulations can also benefit the financial services industry as a whole in the long term.
Other types of regulation do not benefit financial services or asset management at all but are intended to protect other interests outside of the corporate world. Environmental regulations are a common example of this. The Environmental Protection Agency (EPA) often requires a company or industry to upgrade equipment and to use more expensive processes to reduce environmental impact. These types of regulations often have a ripple effect, causing tumult in the stock market and overall instability in the financial sector as the regulations take effect. For example, Companies often try to shift their increased costs to their consumers or customers, which is another reason why environmental regulations are often controversial.
Name: Fidelis Emmanuel Oluebubechukwu
Reg. No.: 2017/241440
Email: emmanuel.fidelis.241440@unn.edu.ng
Yes, I agree with this assertion. When a bank is experiencing bankruptcy as a result of controversial practices, it makes the public loose confidence in the bank to safeguard their money and would withdraw all their deposits from the bank which will lead to a decrease in the numbers of customers of the bank, when this happens, the financial activities/transactions of the bank will be negatively affected which will bring about negative externalities in the Economy which in return affect the growth of the Economy in general.
Name: Ugochukwu Onyinyechi Marycynthia
Reg no: 2017/249580
Department: Economics
Yes, I agree with this assertion. The primary role of financial institutions is to provide liquidity to the economy and permit a higher level of economic activity than would otherwise be possible. According to the Brookings Institute, banks accomplish this in three main ways: offering credit, managing markets and pooling risk among consumers.
While the growth potential is enviable, it is not always a bed of roses for banks in emerging market. Faced with mutually interdependent forces of competition, regulation, technology upgrades and changing expectations of customers, banks are set for a range of challenges.
The challenges facing financial institutions may include the following:
1. Rising expectations
2. Changing business models
3. Customer Retention
4. Outdated mobile experience
5. Security breaches
6. Increasing competition
7. Continuous innovation
In many parts of the world, international financial institutions (IFIs) play a major role in the social and economic development programs of nations with developing or transitional economies. This role includes advising on development projects, funding them and assisting in their implementation.
I do not agree with the assertion.
If bankruptcy occurs as result of controversial practices by financial institutions, individuals would no longer have confidence to entrust their funds in the hands of the financial institutions and people would prefer to hold their money by themselves or in form of physical assets and this would lead to a lack of credit( access to funds for investment). It would eventually lead to lack or deduction of investment in the economy.
Name: Anayo Bright Udochukwu
Reg. Number: 2017/249482
Department: Economics
Fore most, ethical and unethical issues in the financial institution affect everyone, because even if you don’t work in the field, you’re a consumer of the service.
Yes, I agree with the assertion that if financial institution were to enter into bankruptcy as a result of controversial practices, this will no doubt cause wide-spread panic as people start to question the safety of their finances. Also, this loss of confidence can inflict further negative externalities upon the economy.
However, the reforms focused on strengthening the financial systems through banking sector consolidation, foreign exchange market stabilization, interest rates restructuring is an example that there is actual a case of controversial practices.
Above all, those who help the financial institution render services would panic as a result of bankruptcy and many reasons abound. Firstly, due to the uncertainty of decrease in work force. Secondly, those who are consumer of the service will question about intermediation in financial institution in which they benefit.
On the other hand, the loss of confidence would rise up negative externalities upon any economy. There will be shortage of production: when the financial intermediation reduces, this inturn affect the deficit sector of the economy and at much high rate if it is in production of consumable good which will lead to demand-pull inflation. Again, the loss of credibility: this refers with external or international status via a situation of statement of truth maybe taken as false due to the mouth piece. Hence, economic data gotten from Chinese data base are always claim to be padded, thereby making other economies to believe so. Moveover, after the credibility, there is likely to be a reduction in foreign direct investment into the economy of host because the financial institution is a middle man.
In totality is always good that financial institutions controversies should be avoided at all cost because its negative consequences always take time to swipe off. And can even lead to the collapse of any entity.
Ideba Tochukwu Emmanuel
2017/241435
Lose of confidence in the financial institution simply result lack of trust in the financial institution and this might be a resulting effect of bankruptcy of the financial institution. The very important element in the financial system of any country is TRUST. Trust build up the confidence of people to deposit money and trust other financial services provided by the financial institution. This is why many country ensures that the financial institution is well regulated. But when this trust is lost, it cause Economic disaster not just in the country in question but might cut across other countries as their is interconnectedness among the financial institution of various countries.
One way which the Lack of Trust in the financial institution can cause Economic disaster is by reducing the confidence that the financial institution is a safe destination for safe keeping of deposit. This result to low deposit/savings and as such loanable funds becomes scares. The resulting effect of low deposit is inadequate credit and when credit is not available, investment becomes a mere wish and as such the Economy begins to grow less.
Name: Anayo Bright Udochukwu
Reg. Number: 2017/249482
Department: Economics
Fore most, ethical and unethical issues in the financial institution affect everyone, because even if you don’t work in the field, you’re a consumer of the service.
Yes, I agree with the assertion that if financial institution were to enter into bankruptcy as a result of controversial practices, this will no doubt cause wide-spread panic as people start to question the safety of their finances. Also, this loss of confidence can inflict further negative externalities upon the economy.
However, the reforms focused on strengthening the financial systems through banking sector consolidation, foreign exchange market stabilization, interest rates restructuring is an example that there is actual a case of controversial practices.
Above all, those who help the financial institution render services would panic as a result of bankruptcy and many reasons abound. Firstly, due to the uncertainty of decrease in work force. Secondly, those who are consumer of the service will question about intermediation in financial institution in which they benefit.
On the other hand, the loss of confidence would rise up negative externalities upon any economy. There will be shortage of production: when the financial intermediation reduces, this inturn affect the deficit sector of the economy and at much high rate if it is in production of consumable good which will lead to demand-pull inflation. Again, the loss of credibility: this refers with external or international status via a situation of statement of truth maybe taken as false due to the mouth piece. Hence, economic data gotten from Chinese data base are always claim to be padded, thereby making other economies to believe so. Moreover, after the credibility, there is likely to be a reduction in foreign direct investment into the economy of host because the financial institution is a middle man.
In totality is always good that financial institutions controversies should be avoided at all cost because its negative consequences always take time to swipe off. And can even lead to the collapse of any entity.
Name: ONAH GEORGE CHIEDOZIE.
REG. NO: 2017/241453.
DEPARTMENT: ECONOMICS
It is quite obvious, nobody would like to make looses no matter the kind of business engaged in. When a financial institution goes into bankruptcy, fear erupt among the customers, in this scenario, customers question the safety of their wealth. Nagative externalities in the other hand comes in when people withdraw all their money or finances because of fear associated with the bank falling down. One could ask, what is the implication of this act ( that is the bank going into bankruptcy)?. When customers withdraw their money from the bank because of the fear of bankruptcy, this would in turn reduces the amount being deposited in the bank, which limit the transfer of wealth from surplus economic unit to deficit unit, this will definitely affect the economic growth negatively.
NNANYELUGO CHIDERA MICHAEl
Reg no: 2017/245023
Email: chiderannanyelugo@gmail.com
Dept: Economics
I agree with this assertion following the
Meaning of Bankruptcy?
Bankruptcy is a legal proceeding involving a person or business that is unable to repay their outstanding debts. The bankruptcy process begins with a petition filed by the debtor, which is most common, or on behalf of creditors, which is less common. All of the debtor’s assets are measured and evaluated, and the assets may be used to repay a portion of outstanding debt.
as a result of controversial practices caused by the financial institutions, this will no doubt cause wide-spread panic as people start to question the safety of their finances. Resulting to loss of confidence which can inflict further negative externalities upon the economy. As a result of this it can seriously damage your credit history. This are considered negative information on your credit report, and can affect how future lenders view you. Seeing a bankruptcy on your credit file may prompt creditors to decline extending you credit or to offer you higher interest rates and less favorable terms if they do decide to give you credit.declaring bankruptcy has a serious, long-term effect on your credit. Bankruptcy will remain on your credit report for 7-10 years, affecting your ability to open credit card accounts and get approved for loans with favorable rates, with this people will loose a complete trust on the bank or on the economy, and the economy will suffer more as follows.
1 Bankruptcy Leaves a Lasting Mark on Your Credit Score
One of the immediate negative effects of bankruptcy is the immediate hit on your credit.
2 Bankruptcy Is Public Record
Not only does bankruptcy affect your credit report, but it can also affect your personal life. Unless they are sealed by a judge, bankruptcy records are a matter of public record and can be looked up online.
3 Filing for Bankruptcy Doesn’t Erase All Debt
Although one effect of bankruptcy is wiping away all of your revolving debt, it doesn’t remove everything. Some debts cannot be absolved through filing bankruptcy.
4 Filing for Bankruptcy Is Expensive
The idea behind bankruptcy protection is that debtors don’t have the money to pay off their loans and credit cards. But the truth about bankruptcy is that it costs over $300 to file your case with the US courts.
5 Obtaining a Mortgage After Bankruptcy Is Challenging
One of the biggest consequences of bankruptcy is difficulty purchasing or refinancing a home after declaring bankruptcy. Although it’s possible, the rules for getting a mortgage are much stricter.
6 Bankruptcy Makes Good Credit Card Offers Hard to Come By
When you think of the best credit card offers, you’re probably envisioning earning thousands of points or miles to use towards travel or cash back. But one of the consequences of bankruptcy is that many of these offers are out of reach.
7 Missing Bankruptcy Payments Can Mean Losing Your Assets
As a result, those who stop making payments may lose their exempted property, including their homes, cars, and any other secured property.
The truth about bankruptcy is that it’s the “last resort” for consumers. Although individuals can find relief from their debts
NAME:OKEKE NANCY OGADIMMA
REG NO:2017/249557
DEPARTMENT:ECONOMICS
EMAIL:ogadimmanancy12@gmail.com
Yes, the assertion is right.
When there is a financial crisis In the economy, the financial instruments and assets decrease significantly in value. As a result, businesses have trouble meeting their financial obligations. Also financial institutions lack sufficient cash or convertible assets to fund projects and meet immediate needs. Investors lose confidence in the value of their assets and consumer’s incomes and assets are compromised, making it difficult for them to pay their debts.
Now coming to bank failure or bankruptcy rather, a bank fails when it can’t meet the financial obligations to creditors and depositors. This could occur because the bank in question has become insolvent, or because it no longer has enough liquid assets to fulfill its payment obligations. So therefore If by any chance, a financial institution or bank goes into bankruptcy due to controversial practices, this would obviously lead to a widely spread panic as people would begin to question the safety of their finances.
Also, when a bank fails, it may try to borrow money from other solvent banks in order to pay its depositors. If the failing bank cannot pay its depositors , the depositors will run on the bank in an attempt to get their money back. This can make the situation worse for the failing bank, by shrinking its liquid assets as depositors withdraw cash from the bank.
Name: Ani, Gabriel Ogbonna
Reg. Number: 2017/249483
Email: anigabriel05@gmail.com
The word Bankruptcy is the legal status of a human or a non-human entity (a firm or a government agency) that is unable to repay its outstanding debts to creditors.When an organisation is unable to honour its financial obligations or make payment to its creditors, it files for bankruptcy. If financial institution ( eg. Bank) enter into bankruptcy due to controversial practices, this will cause panic and loss of confidence among the customers of financial institutions. The customers will question the safety of their finances. This financial institutions ( banks) deals with finance (money). This finance are own by different individuals, institutions, organizations and government. Any controversy encountered by the financial institutions will refer the Economy unproductive. This made the financial institutions to be considered bas most delicate institution.
Any shortfall in the integrity of the financial institutions will constitutes negative externalities in the Economy. In other words this will impact negatively of Economy such as decrease in investment, increase in unemployment rate, reduction in income level, decrease in standard of living, rapid increase of poverty, decrease in foreign investment and decrease in savings.
NAME: Emmanuel Treasure Adanne
Department: Economics
Reg No: 2017/242436
Email address: http://www.treasureadaemmanuel@gmail.com
Website: treshvinaemman54.blogspot.com
Answer:
When financial institutions get into bankruptcy, it lead to banking crises which occurs due to overextenfing low quality loans which increases the level of risk, consequently during a market downturn the loans become worthless. Banking crisis include bankrupts which affect single banks. It happens when depositors loose faith in banks and withdraw their deposit collectively at the same time consequently banks will not have enough liquidity to repay their customers which results in banks shut down temporarily or permantly. It could result in banking panics which can affect many banks, people whose finances are in the bank or it could lead to systematic banking crisis which is the collapse of the entire financial system.
Due to people loosing their trust in the banks, withdrawing their money, and banks having little or nothing to finance their business through loans, etc, there is presence of currency crisis. Currency crisis occurs when there is a sharp decline in the currency value due to depreciation or due to monetary policy tools called devalution. This decline affects the economy negatively by creating instabilities in exchange rates. This can lead to capital flight which occurs when investors take their money out of their country and this create liquidity problem downward pressures in currency value.
This currency crisis further lead to debt crisis. This occurs when there is sustainable increase in budget deficit due to excessive borrowing by the government consequently ending up with massive debt due to inability to pay back due to lack of investment resulting from lack of confidence by people to invest.
Conclusions
Due to burst of existing bubbles which results in sharp decline in assets price and the need for government to inject more money in the economy to increase liquidity in order to get back banks recover from bankruptcy in that case government work is the lender of last resort to avoid budget deficit and public debt.
OKOYE OBINNA CHIDIEBERE
2014/191864
ECONOMICS
Yes, I agree with this assertion. Trust is one of the foundations of financial platforms. People trust them, that is why they put their finances into them. Once the trust is gone, the confidence also reduces, and due to human nature; we will not be comfortable putting money into something we distrust. Loss of confidence on the integrity and competence of the firm even when they eventually bounce back to life. People and investors may no longer trust the firm with their finances as a result of bankruptcy.
Bankruptcy can adversely subvert the growth of investment. This is due to lack of loans as a result of bankruptcy. When investment is low, employment is low and income is low.
Unemployment: when a financial institution goes bankrupt, laying off of workers is inevitable because it may not be able to pay its workers salaries. Thereby forcing them to join the pool of the unemployment.
NAME: MADUAGUM MADONNA CHIOMA
REG. NO: 2017/241456
EMAIL: cmaduagum@gmail.com
ECO 324
I agree with the assertion that this can inflict negative externalities on the economy because a loss of confidence in the financial institutions leads to a decline in funds/ money supply for investment. This is because there will be massive withdrawal of funds/assets as people are very delicate with matters involving their finance hence there will be shortage of money which the financial institutions use for investments making it difficult to grant loans, thus leading to a significant fall in investment level further leading to lower economic growth and higher unemployment as the institutions would lay off workers and those who could not be granted loans would not have startup capital for their businesses.
Also, news about bankruptcy caused by controversial practices would make people more risk averse and they’ll switch to cash saving rather than depositing at the banks. This hinders the growth of the financial institution and there would be a fall in general income level. With reduction in Investments, there would be decline in savings which will affect the economy negatively.
NAME: ENYUM JOSEPH IKECHUKWU
REG NO: 2017/249498
DEPT: ECONOMICS
E-MAIL:enyumjoseph@gmail.com
Controversial practices by financial institutions.
Financial institutions offer a wide range of products and services for individual and commercial clients. The specific services offered vary widely between different types of financial institutions.
Commercial Banks
A commercial bank is a type of financial institution that accepts deposits, offers checking account services, makes business, personal, and mortgage loans, and offers basic financial products like certificates of deposit (CDs) and savings accounts to individuals and small businesses. A commercial bank is where most people do their banking, as opposed to an investment bank.
Banks and similar business entities, such as thrifts or credit unions, offer the most commonly recognized and frequently used financial services: checking and savings accounts, home mortgages, and other types of loans for retail and commercial customers. Banks also act as payment agents via credit cards, wire transfers, and currency exchange.
Investment Banks
Investment banks specialize in providing services designed to facilitate business operations, such as capital expenditure financing and equity offerings, including initial public offerings
(IPOs). They also commonly offer brokerage services for investors, act as market makers for trading exchanges, and manage mergers, acquisitions, and other corporate restructurings.
Insurance Companies
Among the most familiar non-bank financial institutions are insurance companies. Providing insurance, whether for individuals or corporations, is one of the oldest financial services. Protection of assets and protection against financial risk, secured through insurance products, is an essential service that facilitates individual and corporate investments that fuel economic growth.
Financial institutions serve most people in some way, as financial operations are a critical part of any economy, with individuals and companies relying on financial institutions for transactions and investing. Governments consider it imperative to oversee and regulate banks and financial institutions because they do play such an integral part of the economy. Historically, bankruptcies of financial institutions can create panic.
In the United States, the Federal Deposit Insurance Corporation (FDIC) insures regular deposit accounts to reassure individuals and businesses regarding the safety of their finances with financial institutions. The health of a nation’s banking system is a linchpin of economic stability. Loss of confidence in a financial institution can easily lead to a bank run.
Okoronkwo Uchechukwu David
2017/241455
Economics Department
uchechukwu.okoronkwo.241455@unn.edu.ng
Yes, i do agree that if by chance a financial institution were to enter into bankruptcy as a result of controversial practices, eventually, there is no doubt wide-spread panic will occur because people will start to question the safety of their finances and this will lead to large number of withdrawals from the institutions and lesser investments because no one would like to be a scapegoat and this will result in less funds for the institution to use and carry out any financial transaction and on a larger scale, the economy is dragged into the mess because financial institutions are part of the core engines of the economy.
So if financial institutions do not keep up to the due procedures that will keep them up and functional to deliver as required then the result for a work poorly done will be nothing but lost of confidence in financial institutions and that will lead to economic failure & that is a huge negativity for an/any economy as it will affect growth generally.
IGWEH SIXTUS OZIOMA
2017/247588
ECO 324
ANSWER
CONTROVERSIAL PRACTICES BY FINANCIAL INSTITUTIONS
Most Financial Institutions practice some type of illicit financial activities either covertly or inertly to improve their customer base and expand their financial authority in the financial market. Financial Institutions are responsible for the security of deposits and investments made by customers, sale of stocks and shares in the business market, etc.
Some of the controversial/illicit financial activities done by financial institutions include;
Lowering of interest rates,
Low lending standards,
Poor regulation of non-depository financial institutions,
Insider trading (leaking of trading information or strategies to externals i.e normal citizens, rival financial institutions)
Influencing stock value at market price
Fake policies to make customers increase their credit
Favouritism to certain customers (particularly those who have current accounts and large amounts of money in the financial institution)
When Financial Institutions begin to engage in the above stated controversial practices, it makes customers want to close their accounts with such institutions, it also creates a stigma such that whenever the name of the institution is mentioned people believe that all workers and shareholders of that financial institution are corrupt and bad financial practioneers.
The ultimate effect of loss of public confidence to any financial institution is known as “`BANKRUPTCY”. According to Merriam-Webster Dictionary, bankruptcy is a condition of being bankrupt. a condition of financial failure caused by not having the money that you need to pay your debts. Before any financial institution is created, there are certain conditions it has to satisfy with the Central Bank before it can be instituted. The Central Bank of any country is the apex that creates and regulates the actions of financial activities. Before any financial institution is allowed to function in the business world, it has to leave a specified amount with the Central Bank which will be used to settle its customers when the situation of bankruptcy occurs. Once a bank is declared bankrupt all its fixed assets and current deposits before closure are forfeited to the Central Bank.
The impact of controversial financial practices on the economy of a country can be very telling. There is a popular saying that if the oil touches one finger then it has touched all five fingers. When a financial institution is branded as “corrupt” it reduces the rate of investment in the country by foreign investors and foreign banks, because the stigma has been created that if one bank in the country is corrupt all banks in the country are also corrupt.
Also, citizens of the country will no longer keep their money with financial institutions, they will prefer to hold their money rather than to put it in a place that has corrupt officials. This will lead to scarcity of money to be circulated across the economy as no one is willing to lose their money. In the long run the country will run into recession as its citizens no longer patronize their financial institutions, instead the prefer to use financial institutions of other countries.
There will be a reduction in the number of financial practioneers in the economy, because assuming it is discovered that a particular financial institution is into illicit financial transactions it gives all its workers and financial practioneers of other financial institutions a bad name, as financial practioneers would lose face in the society, people will resign and look for other jobs so as to maintain a good name thereby creating unemployment in the economy.
NNAMANI, GREAT OGOMUEGBUNAM
2017/249532
ECONOMICS
The investment industry plays a key role in the economic development of every nation, and trust is it’s foundation. When trust is lost, confidence is lost. The effect of loss of confidence can be enormous in the economy, especially when it is a direct comeuppance of controversial activities by employees, companies or other investors. The economy in question immediately begins to suffer from inexplicable capital outflows. This is because investors can no longer rely on the dictates of the market. They would rather spend their money or invest in assets that are located in reliable countries. Because of the increasing flight of capital, there is a massive reduction in investment. It is worthy of note that investment is a major determining factor of the GDP. Since this key factor begins to face a downturn, the GDP of the economy gradually begins to shrink. A shrink in the GDP means a decline in output. A decline in output means a reduced volume of goods and services available. Since it has been noticed from the previous assignment that the economy is interlinked, this downturn quickly begins to trickle down to the various sectors of the economy. In the end, expected future incomes and wealth fall and the economy embraces recession.
How Financial Institutions Work
Financial institutions serve most people in some way, as financial operations are a critical part of any economy, with individuals and companies relying on financial institutions for transactions and investing. Governments consider it imperative to oversee and regulate banks and financial institutions because they do play such an integral part of the economy. Historically, bankruptcies of financial institutions can create panic.
In the United States, the Federal Deposit Insurance Corporation (FDIC) insures regular deposit accounts to reassure individuals and businesses regarding the safety of their finances with financial institutions. The health of a nation’s banking system is a linchpin of economic stability. Loss of confidence in a financial institution can easily lead to a bank run.
KEY TAKEAWAYS
A financial institution (FI) is a company engaged in the business of dealing with financial and monetary transactions such as deposits, loans, investments, and currency exchange.
Financial institutions encompass a broad range of business operations within the financial services sector including banks, trust companies, insurance companies, brokerage firms, and investment dealers.
Financial institutions can vary by size, scope, and geography.
Impact of financial institution
They provide economic loans to various persons or organisations. 2) They provide financial interest to the money deposit accounts. 3) They can control and manipulate the money flow in an economic market.
Classification of Financial Institutions based on their practices
Financial institutions offer a wide range of products and services for individual and commercial clients. The specific services offered vary widely between different types of financial institutions.
Commercial Banks
A commercial bank is a type of financial institution that accepts deposits, offers checking account services, makes business, personal, and mortgage loans, and offers basic financial products like certificates of deposit (CDs) and savings accounts to individuals and small businesses. A commercial bank is where most people do their banking, as opposed to an investment bank.
Banks and similar business entities, such as thrifts or credit unions, offer the most commonly recognized and frequently used financial services: checking and savings accounts, home mortgages, and other types of loans for retail and commercial customers. Banks also act as payment agents via credit cards, wire transfers, and currency exchange.
Investment Banks
Investment banks specialize in providing services designed to facilitate business operations, such as capital expenditure financing and equity offerings, including initial public offerings
(IPOs). They also commonly offer brokerage services for investors, act as market makers for trading exchanges, and manage mergers, acquisitions, and other corporate restructurings.
Insurance Companies
Among the most familiar non-bank financial institutions are insurance companies. Providing insurance, whether for individuals or corporations, is one of the oldest financial services. Protection of assets and protection against financial risk, secured through insurance products, is an essential service that facilitates individual and corporate investments that fuel economic growth.
Brokerage Firms
Investment companies and brokerages, such as mutual fund and exchange-traded fund (ETF) provider Fidelity Investments, specialize in providing investment services that include wealth management and financial advisory services. They also provide access to investment products that may range from stocks and bonds all the way to lesser-known alternative investments, such as hedge funds and private equity investments.
They control how much they lend and how they lend.
Some control the intrest rates (the federal reserve).
Some help investors save for their futures with their own mutual funds which invest on a set of criteria.
They make loans to businesses.
The set their savings rate on CD’s and and other savings accounts (though in the US it is pretty low).
Conclusions
The activities of financial institutions are numerous , likewise it impacts on the economy ,but still the trust people have in them decreases day by day;
This loss of trust in banks is accentuated by the social media effect, the lack of real responsiveness to the GFC back lash in respect to transparency and bank policy, and changing consumer behavior. The next effect of this loss of trust will be that banks have a much harder time in encourage deposits and improving savings participation – something that is essential for bank profitability moving forward as proprietary trading goes under the regulator’s microscope and as wholesale funding sources dry up.
What banks need to do right now is start honestly thinking about how to engage collaboratively with customers. It’s not just transparency, but a fundamental shift from the internal philosophy that if consumers want to be a customer of our bank they have to play by our rules…
As of today, if you’re a bank – you have to play by my rules!
Name: Ugorji Ijeoma Judith
Reg no: 2017/243088
Department: Economics
Bankruptcy emanates from the word bankrupt which simply explains a situation in which an individual/organization is without enough money to pay what they owe. Bankruptcy therefore is the state of being bankrupt. More formerly, bankruptcy is the legal status of a human or non human entity that is unable to repay its outstanding debt. It is a legal process through which people or other entities who cannot repay debt to creditors may seek relief from some or all of their debts.
In most jurisdiction, bankruptcy is imposed by a court order often initiated by the debtor. When an organization is unable to keep up with its financial obligations or settle it’s creditors, it files for bankruptcy. This filing helps the individual, organization or institution free itself from debt obligations.
Financial institutions just like other entities can also go bankrupt and hence file for bankruptcy. These could be as a result of controversial practices such as mis-management, mis-appropriation of funds, inability to recover loans and other related issues. However when this happens, it has negative effect on the company in particular and the public in general. These effects includes:
A major effect is a widespread panic on individuals having one business or another with the institution. People begin to develop fear and uncertainty as regards the safety of their finances which may eventually not be repaid.
Loss of confidence on the integrity and competence of the firm even when they eventually bounce back to life. People and investors may no longer trust the firm with their finances as a result of bankruptcy.
Bankruptcy can adversely subvert the growth of investment. This is due to lack of loans as a result of bankruptcy. When investment is low, employment is low and income is low.
Unemployment: when a financial institution goes bankrupt, laying off of workers is inevitable because it may not be able to pay its workers salaries. Thereby forcing them to join the pool of the unemployment.
ANENE VICTORIA CHIOMA
2017/242435
ECONOMICS DEPARTMENT
Victoria.anene.242435@unn.edu.ng
Toria20@simplesite.com
Yes I strongly agree reason being that bankruptcy of financial institution implies major financial institution running short of money (liquidity). In a severe financial crisis, some financial institutions may go out of business. If these financial institutions do face liquidity shortages or worse, it will have a major impact on savers, business and consumers. Bankruptcy of financial institutions invariably affect economic growth and can cause unemployment. In the recent banking crisis, banks cut back on lending. This meant firms didn’t have the funds to finance investment.
Effects of bankruptcy of financial institutions on the economy.
Decline in funds for investment:
If banks are short of liquidity, they will be less willing to lend money to firms and consumers. In particular, banks will be reluctant to lend to business which are taking risky investments. Therefore, firms who wish to borrow money to finance investment may find it very difficult to get a satisfactory loan. As a consequence, the firm will reduce investment and employ fewer workers. If there is a significant fall in investment levels, then this will lead to lower economic growth and higher unemployment.
Negative multiplier effect:
Investment tends to be quite cyclical. A fall in investment levels causes lower economic growth, but this lower growth has a knock on effect; with lower demand, firms cut back further on investment levels. With declining investment, some workers are made redundant from less investment, but as there is also lower economic growth, it causes job losses in other sectors like retail, which sees a general decline in demand.
Confidence:
Bankruptcy of financial institutions will have an impact on general economic confidence. News about a bankruptcy will tend to make people more risk averse. Consumers will prefer to increase savings and reduce spending. If consumers fear savings are not safe in a bank, they will also switch to cash saving and not keep money in a bank.
Ugwoke faith chinazaekpere
2017/249582
Economics
yes I agree
The loss of confidence in financial institution could inflict further negative externalities upon economy such that they would start loosing customers which could lead to reduction In income, when that happens, there will be a general retrenchment of workers which will make them to fall back to unemployment state.It could also lead to a general fall in standard of living ie a decrease in income per head, people’s income won’t be enough for them to take care if there needs,this can also lead to increase in poverty rate. when there is an increase in poverty rate, there will be decrease in foreign investment and it displays a very bad image of a particular country.
NAME: OKEKE JUDE CHIMOBI
REG NO: 2017/249556
EMAIL: chimobiokeke@gmail.com
DEPARTMENT: ECONOMICS
I feel to reject this assertion, because If financial institution were to enter into bankruptcy as a result of controversial practices, this will definitely cause wide-spread panic as people start to question the safety of their finances considering the fact that the most well-known consequence of bankruptcy is the loss of property. Bankruptcy damages financial institution credit. Bankruptcies are considered negative information on their credit report, and can affect how future investors or depositors view the financial institution. Seeing a bankruptcy on a bank credit file may prompt creditors or investors to decline extending their credit to the bank or to demand higher interest rates and less favorable terms if they do decide to give you credit or deposit.
However, with the occurrence of Bankruptcy or the site of Bankruptcy in any financial institution credit report it will lead to low savings and investment which will affect the economy negatively and result to decline in employment level and level of national income. Based on this people will loose their confidence and this will inflict further negative externalities upon the economy.
NAME: OBODO CHISOM JESSICA
REG NO: 2017/249538
EMAIL: chisom.obodo.249538@unn.edu.ng
I agree with this assertion, bankruptcy is the realization of the financial institution’s catastrophic risks in the course of its business, resulting in failure to meet time-bound claims of creditors and fulfill budget liabilities.
When a financial institution enters into bankruptcy, as a result of controversial practices it will lead to panic and fear as people begin to quest the safety of their finances and as a result of this will decide to withdraw their money from the financial institution. This will lead to a drastic reduction in investments made into the financial institution because people will stop investing and saving their assets or money, they would rather do so in another institution where they’re confident that their finances would be safe without any risk of loss or bankruptcy.
This lack of confidence and trust will eventually lead to a number of negative socio-economic consequences, such as spread of unemployment and poverty in the country being the most important of them because financial institutions play a very important role in the growth and development of an economy.
NAME: EZIKE MARYCYNTHIA CHIAMAKA
REG NO: 2017/242944.
EMAIL: marycynthiachiamaka95@gmail.com
DEPT: ECONOMICS.
If it happens that a financial institution were to enter into bankruptcy as a result of controversial practices, this will no doubt cause wide-spread panic as people start to question the safety of their finances. Also, this loss of confidence can inflict further negative externalities upon the economy. Do you agree with this assertion?
Concurring to the forgoing statement, it’s quite natural for people to react because the main purpose of deciding to keep their money in the bank is solely for safe keeping and savings, and when these reasons are not met, the people involved with the bank in question would want to withdraw all their money from the bank and move to another one, some may even not move to another bank and disave due to fear of unsafety of their money and assets in the legal institutions made for the direct opposite reason. These actions thus causes the bank in bankruptcy to loose money and investment and this will drastically reduce the operation and performance of the bank. The action of these people is mainly due to lack of confidence and trust with the bank in bankruptcy thus causing negative externalities. Also the people withdrawing all their money from the bank will cause the bank to fall and thus reducing economic growth and development which in turn brings about poverty and unemployment in the economy, since financial institutions are also drivers of economic growth and development in an economy.
NWANKWO BASIL CHUKWUEMEKA
2016/233850
ECONOMICS DEPARTMENT
I agree with the assertion. First people save their money in financial institutions like commercial banks because they believe that their money is save and they trust the banking system. When the bank, which acts as a gateway for the economy files for bankruptcy as a result of being insolvent, people begin to panic about loss of their assets and they will begin to withdraw all their assets from the bank. This panic withdrawal might make the bank to start selling their assets to repay their customers. Furthermore, People will no longer have the zeal to save and some might start disaving. In turn, Investors will no longer have access to investment loans from banks due to low savings by people, this will lead to low investment and low investment will lead to low economic output completing the vicious flow of poverty.
Poverty in turn will bring various kinds of negative externalities in the economy such as unemployment, as a result of low investment, there will be low demand for labour in the economy.
Unemployment will in turn bring it’s own negative vices such as stealing, kidnapping, internet fraud etc.
Name:Meteke Joy Orimusue
Reg.no:2017/242430
Department:Economics
Website: metekejoy01.blogspot.com
Email:joymetex2000@gmai.com
Bankruptcy come about mainly because the institutions involved are unable to meet the obligations it has(unethical conducts). These obligations can be to depositors or other institutions. Financial institution are established to save people’s money ,that means people find trust and confidence in such institution to keep their money but when the bank(an example of a financial institution ) , which acts as a pathway for the economy becomes bankrupt as a result of being insolvent, people begin to panic about loss of their assets and this would make them to withdraw all their money from the bank. This panic withdraw will make the bank to start selling their assets to repay in order to repay their customers. Furthermore, People will no longer have the interest to save. In turn, Investors will no longer have access to investment loans from banks due to low savings by people, this will lead to low investment and low investment will lead to low economic output completing the vicious flow of poverty.Poverty in turn will bring various kinds of negative externalities in the economy such as unemployment, as a result of low investment, there will be low demand for labour in the economy.Unemployment will in turn bring it’s own negative vices such as armedrobbery, kidnapping, etc.Another negative externality is that as a result of this vicious circle of poverty,the country bears a bad image by other countries.
OKORORIE EMMANUEL KELECHI
2017/242947
ECONOMICS
manuelokororie@gmail.com
Bankruptcy is a situation whereby an organization is unable to honor its financial obligations or make payments to its creditors. The company then files for bankruptcy, a petition is filed in the court for the same where all the outstanding debts of the company are measured and paid out in full from the company’s assets.
If a financial institution files for bankruptcy, the general populace will be worried about the safety of their finances. For instance, if First Bank files for bankruptcy, everyone that makes use of any type financial institution will be worried not just the customers of First Bank. This is as a result of a concept termed financial contagion. Financial contagion refers to the spread of market disturbances – mostly on the downside – from one institution to another and from one country to another. It a systematic risk that financial difficulties at one or more bank(s) spill over to a large number of other banks or the financial system as a whole. If this occurs, it will inflict other negatives externalities upon the economy which could lead to the collapse of the economy.
The financial system is the lifeblood of any economy and that is why the government is in charge of regulating it and that is also why innovations within the financial system are geared towards increasing customers confidence, trust, and acceptance. The financial system is the substructure of every economy. An underdeveloped financial system indicates an underdeveloped economy. The 2008 financial crisis in the United States that led to the great recession in United States and Western Europe shows how failures of financial system is detrimental to the economy.
NAME: OZUEM DEBORAH OGHENEKEVWE
REG NO: 2017/249572
EMAIL: deborah.ozuem.249572@unn.edu.ng
BLOG: favourdebbie.blogger.com
One of the major benefits of an effective and efficient financial system is that it increases investors’ trust in the industry and strengthens the fairness of financial markets. Once a financial institution in the industry goes bankrupt due to unethical or controversial practices, the first and immediate resultant effect is the loss of integrity and trust in the dealings and operations of the financial institution. Now this loss of trust would not only affect the concerned institution but would have spillover effects on the whole financial system and consequently the economy. How?
Now if a bank for instance goes bankrupt due to unethical conducts, the first line of action for every rational customers is to withdraw all of their savings and assets from the bank and this action was induced by the fact that customers no longer have trust in the bank to oversee their finances. This would automatically lead to a decrease in savings. Other banks who were not directly involved would also suffer a decrease in the amount of their savings because people no longer trust the system. The action of one bank has spilled over to affect other banks in the system. Now once savings continues to decrease, there would not be enough money for investment as raising capital would be difficult in the financial market. Without investment or capital, there would be loss of business opportunities and even some companies may run out of business. In the face of all these, we see that the economy starts slowing down as productive econonic activities are no longer flourishing.
In conclusion, trust is what keeps the engine of the financial system rolling. People trust the system to deliver and that is why they transact with it. Once that trust is betrayed, it not only affects the institution concerned but spreads out to affect the industry, the whole system and the economy at large.
NAME: UMELO CHIDERA NICOLE
REGISTERATION NUMBER: 2017/249589
EMAIL: nicoleumelo@gmail.com
When controversial practices cause financial institutions to run into bankruptcy, people begin to question the security of their finances. This loss of confidence in the financial sector can lead to widespread negative externalities in the economy. This much is true.
You see, dear reader, the financial system has to do with money- the money of different person’s, institutions and organizations, even the government. It is for this reason that the financial system is considered delicate. Any whiff of malpractice or mismanagement can cause a ripple effect throughout the entire economy. What are these ripple effects?
1. Reduction in savings: it is not so much a reduction in savings as it is a withdrawal of savings from different institutions in the economy. For instance, if it is ever discovered that the CEO of a particular bank e.g. First bank PLC, loaned a huge amount of money to a particular investor who used fake assets as collateral to secure this loan, and has subsequently disappeared with the money, the customers of First bank will panic. In their panic, those who have saved millions, billions and more, as well as those who have only a few hundred thousand to their name will all want to withdraw their funds from the banks. Many other persons in the economy will refrain from using the services of the said bank. If this continues, people may completely lose trust and respect for banks. Most persons may decide to withdraw their funds from other banks which are not First bank, and so the ripple continues until the total amount of savings in the economy is drastically reduced.
2. Reduction in investment: after savings fall, what next? Simple: investments reduce. Investments are financed by the savings of people, organizations and firms in the economy. If savings fall, banks have no way to raise money for investments, and so investments also falls. This means that start-ups have no way of getting established, firms have no way of growing, and government cannot invest in socio-infrastructural facilities like roads, schools, hospitals etc., without having to borrow from outside organizations like the world bank and other countries. This causes government debts to increase.
3. Increase in unemployment rate: with a reduction in investment by government and individuals and a critical limitation in the level of expansion of firms, the level of unemployment within the economy increases acutely. This is further buttressed by the laying off of workers from different institutions including the banks.
4. Reduction in the income level: since there is a general retrenchment of workers in the economy, there is also a fall in the general level of income.
5. Reduction in the standard of living and well-being in the economy: since the level of income reduces, the standard of living (which is the income per head I an economy) also falls. This, in addition to the poor level of infrastructure in the economy, lead to a reduction in the general well-being of individuals within the economy.
6. Increase in the level of poverty: it is no news that the government cannot provide for us all. It is for this reason that it is quite important for the financial system to finance loans so as to help individuals, firms and even the government invest and expand. However, when the financial system has been disrupted, poverty increases.
7. Reduction in foreign investment: not only domestic investment reduces, but also foreign investment in the economy. No investor in his right mind would ever take the risk of investing in an economy with a shaky, or worse, collapsed economic system. This means that foreign investments are also scared away.
8. Bad image for the country: Malpractice creates a bad name for the country in question. No other country would like to do business with such a country. International organizations might not want to lend to such countries especially when malpractice and bankruptcy are always associated with such country.
Asika joy ogechukwu
2017/242025
Economics department
joy.asika.242025@unn.edu.ng
Often times, the masses are not aware of this bank deposit. They believe that once a bank goes bankrupt, that they would lose their money entirely. Though this premise has elements of truth because, more often than not, the individuals who store their money in the banks lose their money.
Once people lose their trust in these institutions,the tendency to store money again in other financial institutions is low. Nobody wants to hear tales concerning their money, so once a bank has issues, people pull their money and become unwilling when it comes to saving their money again. This negatively affects the circular flow of money in an economy, this is because people are hoarding their money. Banks usually use the money they have to lend to the government as well as private investors, the ripple effect of investment in an economy with all things being equal is an increase in GDP. All of these cannot happen when the masses are not storing their money in the bank.
NAME: OKONKWO FAITH MUNACHI
REG NO: 2017/242422
DEPT: ECONOMICS
EMAIL: faith.okonkwo.242422@unn.edu.ng
ANSWER
I agree with this assertion. If a financial institution or financial institutions enters into bankruptcy as a result of controversial practices it will cause widespread panic as you rightly said and people will loose confidence in financial institutions. This will further inflict negative externalities to the economy as consumers and companies start becoming more conscious about lending and spending beyond their means, which could stifle the economy. When consumers stop spending, this could lead to more companies losing profits and facing bankruptcy themselves this could lead to economic depression and affect the growth of the economy adversely.
When it is perceived that banks are going bankrupt there will be a great panic and most people would love to withdraw their funds this leads to further negative externalities In the economy because there will be a decline in growth of and development of that country
Normally, the bank serves as an intermediary between the lenders and borrowers they channel funds from those who have to those who do not and this helps to increase investments and economic growth, but when banks fail and people are withdrawing their funds there’s no money to run the normal operations of banks and no money to lend to others for investment. Therefore, I believe bank failures could lead to a total economy failure.
Udeh Rita Ezinne
2017/249578
ritaudeh563@gmail.com
Financial institutions such as banks are the safest way to keep and safe guard our money but IF A FINANCIAL INSTITUTION GOES INTO BANKRUPTCY due to the controversial practices people will be afraid. As a result to this the following are likely to happen:
Individuals begins to loose confidence in the financial institution thereby withdrawing all their investment from the financial institution and also their finance.
The financial institution begin to loose costumers as well because People won’t be able to trust them with their money and investment. When this happens the activities of the financial institution will be affected badly.
However when all these happens it creates negative externalities in the Economy which in return affect the growth of the Economy in general.
NAME: IJE VORDA GOODNESS
REG NO: 2017/249514
DEPARTMENT: ECONOMICS
EMAIL: vordagoodness78@gmail.com
ANSWERS
A Loss of confidence in financial institutions can be necessitated by many factors like poor corporate governance culture exemplified in poor management, poor regulations and supervision, adverse economic situation, fraud, high and rising inflation rate etc. High inflation reduces consumers ability to save and confidence in financial institutions. Political instability is a very strong determinant of the confidence of customers in financial institutions. During the June 12 1993 annulled presidential election there was massive withdrawal of funds from banks in Nigeria.
The loss of confidence in financial institutions bring negative externalities on the economy in the following ways
▪️ When there’s loss of confidence in financial institutions customers will start withdrawing their funds from bank and this will ultimately result in bank crisis and failure. The Great Recession of 2008 was a bank related crisis. As a result of giving credit home loan to the poor it left banks in the US without enough cash this resulted in an all time low in the USA’s GDP in this timeline.
Furthermore, when there’s bank crisis intending lenders can say goodbye to loans because banks would not want to lend to businesses or will set a very high requirement for acquiring loans. This in turn will result in a drop in employment since firms want to be able to financially support their employees but won’t be able to. Firms won’t be able to purchase modern machine and technology to speed up production, this ultimately slows output and economic growth.
Consequently because of the lower employment rates, people don’t really have money to save in financial institutions and banks.
So lost of confidence in the financial institutions create negative externalities like demand-deficit unemployment, because of the high unemployment rate resulting from firms inability to expand, people don’t have money to effect their demand, so the demands of firm’s goods drops further leading to lower firm revenue so firms are left with no choice but to retrench some more employees.
The Loss of confidence in financial institutions can reduce the number of banks available for use, since it may result in bank failure.
In conclusion the loss of confidence in the Nigerian financial institutions affect the economy negatively.
NAME: IWUALA CHIOMA FAVOUR
REG NO: 2017/249520
DEPT: ECONOMICS
EMAIL: iwualafavour573@gmail.com
I agree with this assertion. People will panic when a bank fails and might want to withdraw all their money and also assets from the bank because they would not want to believe or think it’s safe. When a bank fails, it inflicts negative externalities on the economy because of their importance in the intermediation process. The costs and externalities associated with a bank failure are likely to be much larger than those created by the failure of non- bank entity. Also when a bank fails and people withdraw their assets and money from the bank resulting to less savings and investments this will lead to widespread poverty which also is a negative externality.
Name: Ojigwe Shalom Chinaza
Reg No: 2017/249549
Department: Economics
What happens when a financial institution goes bankrupt?
The public and most primary use of a financial institution (banks) is the institution’s ability to store and secure money. The majority of the masses see banks as where they can store their finances, banks are seen as “safe houses”. People trust these institutions but bankruptcy could entirely make individuals lose their trust in these institutions.
Bankruptcy is a legal proceeding involving a person or business that is unable to repay their outstanding debts. The bankruptcy process begins with a petition filed by the debtor, which is most common, or on behalf of creditors, which is less common. All of the debtor’s assets are measured and evaluated, and the assets may be used to repay a portion of outstanding debt.
When a bank fails, it may try to borrow money from other solvent banks in order to pay its depositors. If the failing bank cannot pay its depositors, a bank panic might ensue in which depositors run on the bank in an attempt to get their money back. This can make the situation worse for the failing bank, by shrinking its liquid assets as depositors withdraw cash from the bank. Since the creation of the FDIC, the federal government has insured bank deposits up to $250,000 in the U.S.
Often times, the masses are not aware of this bank deposit. They believe that once a bank goes bankrupt, that they would lose their money entirely. Though this premise has elements of truth because, more often than not, the individuals who store their money in the banks lose their money.
Once people lose their trust in these institutions,the tendency to store money again in other financial institutions is low. Nobody wants to hear tales concerning their money, so once a bank has issues, people pull their money and become unwilling when it comes to saving their money again. This negatively affects the circular flow of money in an economy, this is because people are hoarding their money. Banks usually use the money they have to lend to the government as well as private investors, the ripple effect of investment in an economy with all things being equal is an increase in GDP. All of these cannot happen when the masses are not storing their money in the bank.
In Conclusion, when individuals lose their trust in the financial institutions,it creates negative externalities which has been mentioned above.
NAME: OKPOR MARTHA ASHINEDU
REG. NO: 2017/241430
DEPARTMENT: ECONOMICS
LEVEL: 300L
EMAIL: marthaokpor2017@gmail.com
ANSWER:
Yes, I agree with this assertion. When a bank is experiencing bankruptcy as a result of controversial practices such as when the value of the bank’s assets falls to below the market value of the bank’s liabilities which are the bank’s obligations to creditors and depositors, it makes the public loose confidence in the safety of their money which would also inflict negative externatilies on the economy. When a bank experiences bankruptcy, it may try to borrow money from other solvent banks inorder to pay its depositors. If the falling bank can no Kay its depositors, a bank panic might ensue in which depositors run on the bank in an attempt to get their money back. This can make the situation worse to the failing bank, by shrinking its liquid assets as depositors withdraw cash from the bank.
As a result of people loosing their confidence in financial institutions, thete would be less savings leading to a fall in investment. This is because many depositors will withdraw their money from the bank. This will lead to widespread poverty and unemployment in the economy which will hinder economic growth and development in that economy.
Okonkwo Chidinma Alisa
2017/243086
Economics 300 level
ANSWER
If by any chance, a financial institution goes into bankruptcy due to controversial practices, this would obviously lead to a widely spread panic as people would begin to question the safety of their finances. This implies that people that have dealings with the financial institution in question would start getting scared as to what would become of their finance. This would cause negative externalities as these individuals would likely withdraw all of their money of finance from the financial institution in question.
It would also cause the financial institution to lose customers that is those individuals that have finance there. As the financial institution loses customers, this would affect their financial operations and would therefore affect economic growth.