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The Effects of Bank failure to the Macro Economy


Banks are key participants in the business world, and their evaluation based on failure and participation in the macro economy with effect analysis is discussed below. When dealing with the occurrences of businesses within a wider location that may be national, regional, or even global, several considerations have to be put on the scale. The ability of entities to thrive within the market of such kinds relies on the main factors, such as the behavior of the entrepreneurs, the structures in use, and the decision and policy making the process at large. If all the above essential characteristics are met and well-organized within a system of businesses, then the organizations stand a greater chance of thriving in the economy for longer periods and sustainable states.

Companies operating in a macroeconomic surrounding rely on a diversity of factors, among which banks are a primary concern. Banks are important within such settings, since they are financial bodies that ensure money as a business resource in the circulation. For any success in business, money is a critical target for the achievement of set objectives like profit margins and service delivery. This is achieved through payment of laborers and increasing the gross amount available to meet the requirement of the target population.

Banks, just like other business firms, may fail. Several factors have been found to be the core causative reasons for the experienced banks failures in the United States. For instance, when a bank fails to meet its depositors and creditors it is poised to collapse. Besides, for cases where the market value of a bank's assets cannot tally the assets' value in the existing market, then it is too illiquid to meet its liabilities. In some other occasions, the depositors of the bank may restrain its services to a particular bank due to overheard cases of systematic failure. This will send the survival of such a bank to the doom world of failure.

The existence of these banks in the macro economy is essential for the many reasons mentioned above and in case failure sets a risk to the economy. One biggest fear of the collapse is the loss of jobs. The service providers within this firm would be rendered jobless following the termination of their services. That also means a reduction in tax, since the taxpayers, the bank, and the employees have nothing to contribute to the gross national product. Secondly, the credit availability to small business firms within the macro economy will be cut short. Such credit services like loans have always been essential in profit making through interest impositions. The dissolution of such advantages will possibly shrink the economy of the United States of America.

Collapsed banks will be sought and bought by the malicious private investors after they have fallen with interests of maintaining high capital ratios. This would translate to extra fees on the service delivery, which would be an exploitation of the consumers within the economy. The equity buyers who acquire failed firms would also utilize the cheap deposit base as a pool of liquidity and capital for increased capital returns. This would mean that the depositors will be exploited, and competitions for services in the economy will be imbalanced.

Banks in Other Lines of Businesses

Seeking to understand that the advantages of letting banks take control of other sectors of activity, this would be a breakthrough in the creation of employment to the local people, since the merchandise would be very broad. To ensure that monopolistic markets do not exist, banks should be left to take other lines of business to make sure they offer competitive alternatives in markets, where entrepreneurs want to exploit their customers by prices. Alternatives would always provide the consumers with a range of choices and would allow them to enjoy their preferences. This would also ensure that the quality of the products and services provided would be improved significantly.

Consumers of services offered in the markets also require money for purchases and seeking of services rendered. In cases, where consumers are not able to raise the exact or meet the necessary costs of items at the particular time, the banks can offer such products on credit to the consumers. This would be achieved by providing security and imposition of interests on the original prices. This would facilitate the growth of the economy and foster a healthy development, both technological and infrastructural.

Should Banks be Allowed to Participate in Other Business Lines?

Finally, banks should be allowed to enter the different lines of businesses, since they have shown a significant change in the little directions they have taken despite being regulated by the policies. Would you be able to imagine what progress the insurance industry would make if banks had the mandate to participate? That exercise would see the rates or monthly insurance fees being lowered due to the competition. Consumers would always have a wide range of preferences to opt which best suit his or her needs.

A neglected area in the health sector like insurance against the terminal pathologies would be taken care of with a healthy level of concern. Following the proposition of the U.S. to let banks participate in other business lines is rather important and it should be adopted globally. The most purported industries include computer companies and the selling of real estates. Establishment of such organizations would ensure a good lifestyle with safe, well-built, and maintained real estates, as well as progress in the technological world.

On the other hand, I would discourage the acceptance of leaving banks to indulge in other business lines and only keep their required banking services. A terrific example of giving power to banks is Los Angeles, where slum lording has been a major trouble in the lives of people in this state. A leading participant in this project is the Deutsche Bank. It has evicted many tenants and left the homes to get to atrocious states. The houses are now occupied by criminals and drug dealers, creating even a more frustrating security level in the city.

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