Academic journal article Canadian Social Science

The Future Development Tendency of the International Financial Law from the Perspective of Financial Crisis/LA TENDANCE DE DEVELOPPEMENT DE LA LOI FINANCIERE INTERNATIONALE DANS LA PERSPECTIVE DE LA CRISE FINANCIERE

Academic journal article Canadian Social Science

The Future Development Tendency of the International Financial Law from the Perspective of Financial Crisis/LA TENDANCE DE DEVELOPPEMENT DE LA LOI FINANCIERE INTERNATIONALE DANS LA PERSPECTIVE DE LA CRISE FINANCIERE

Article excerpt

Abstract: The global financial crisis triggered by the subprime mortgage crisis in America made a severe impact on the economies of the whole world including China. The paper analyzes the causes of the crisis, pointing out the deficiencies and insufficiency of the international laws today and offering constructive suggestions to its future development. The analysis of the causes of the crisis and the review of the neglects of the international financial laws in the paper are aimed to offer some suggestions to the reform and improvement of the international financial system in the future.

Keywords: Financial crisis; international financial law; deficiency; tendency

Résumé: La crise financière mondiale déclenchée par la crise des subprimes aux Etats-Unis a eu un impact sévère sur les économies du monde entier y compris la Chine. L'article analyse les causes de la crise, en soulignant les déficits et les insuffisance de la législation internationale actuelle et offre des suggestions constructives pour son développement futur. L'analyse des causes de la crise et la révision du manquement d'intérêt des lois financières internationales dans cet article ont pour but d'offrir quelques suggestions pour la réforme et l'amélioration du système financier international dans l'avenir.

Mots-clés: crise financière; lois financières internationals; deficits; tendance

Since the second half of the year 2008, the global financial crisis triggered by the subprime mortgage crisis caused tremendous shocks on the world economy. The financial industry in many countries has encountered with unprecedented crisis. Some leading investment banks broke down overnight, and still some were dependent on the rescue from the government to survive. Although the governments started launching the financial rescue plan, the crisis did not cease but rather extend to the real economy, tending to evolve to be a financial crisis. To turn the tide, the congress of the United States signed the $700 billion rescue plan (later increased to $800 billion); the European Union launched a $2500 billion financial rescue plan; the Chinese government planned to spend RMB 4000 billion in the next two years and other countries all lowered their interest rates respectively to prevent the future global economic crisis. Then, how did the crisis happen? Does the international financial law regulate the crisis? How will the international financial law develop in the future after the crisis? The paper attempts to give brief answers to the questions above.

1. THE ANALYSIS OF THE FORMATION MECHANISM OF THE GLOBAL FINANCIAL CRISIS

The current global financial crisis was evolved from the American credit crisis caused by subprime mortgage crisis. Then how was the subprime mortgage crisis formed? As we all know, the banks usually make a careful review of the qualifications of the borrowers before granting a loan. Launching subprime loans to the borrowers with reduced repayment capability to purchase real estate will bring more risks to the banks. In recent years, however, to expand their services, the American banks opened its access to loans for the low-income earners. Subprime mortgage means the subprime real estate mortgage or loan given to the borrowers who only have 620 credit scores as opposed to the 660 credit scores of the middle and high income borrowers. The subprime borrowers have a high rate of default. There are various reasons why the banks provide loans to the low-income borrowers. First, it's because the house price keeps increasing, and the borrowers can repay the loan by revolving the capital. This caused the housing bubble expansion, for the real estate can make profits and many speculators got involved. Second, the investment banks used a financial derivative package called Credit Default Sweep to increase their speculating profits. However, once the housing market declines, the default rate will increase, the credit bubble will explode and a lot of subprime loans will not be withdrawn. …

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