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Lending Rescue Measures - A conundrum

Ashwini Kumar
Monday, July 12, 2010
Ashwini Kumar
The world is now seeing an unprecedented weakness in lending flows ? be it mortgage lending or unsecured lending. A silver lining in a rather gloomy market condition is that in the current year financial institutions are witnessing a marginal growth in their business and not a decline as was seen in 2008.

The global retail lending market shrank by 2 percent in 2008 to $27,500 billion. However, the global retail lending market is forecast to have a value of $32,750 billion by 2013, an increase of 19 percent since 2008. Mortgage lending dominates the market with just over 80 percent of the market share in value terms and America accounts for 50.4 percent of the global market value. The measures taken by Americans to revive the mortgage portfolio are closely watched as their revival is key to reverse the present sagging sentiments.

There are largely two main players in the act of revival ? government and regulators. The actions of these players would help the industry and economy turn around. There is no one best solution for the problem and the problem itself is not the same in all countries; and so each country adopts a different strategy to address the crisis. Secondly financial institutions, anticipating the reactionary behavior of these players, will survive and emerge as leaders in the long term.

Some Measures for Revival of Economy
Deposit insurance is one such special measure for revival, and as a concept it is as old as banking. Deposit insurance helps prevent run on banks and thereby in controlling the short term liquidity crisis. Major economies have raised the limits on the deposit insurance to boost the investor’s confidence to stem the runs on the banks.

Stock markets are the pulse of financial markets and the barometer on the health of an economy. The positive sentiments of the stock market help in improving the general sentiments in an economy. Restrictions in short selling are one such measure to restrict and control the bear sentiments in the market, thereby reducing the investor anxiety.

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