Bank Insolvency Case Study

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FINANCIAL MARKETS INSOLVENCY 1) Bank Insolvency When a bank is unable to meet its financial obligations and has to close or go for restructuring then the situation is referred to as bank insolvency. It is also called “Bank failure”. Bank insolvency is quite different from normal insolvency because when a bank bursts it will lead to financial distress for creditors who are the customers, also to the economy as such . Banks can be insolvent due to various reasons like failing to meet reserve requirements by having defaults in the debts they issue. Banking regulations mandate risk measures to reduce bank failures, if any bank suspects cash flow or debt problem, it can be taken over by an administrator who shall attempt to help the…show more content…
Insolvency at one stage has a link and impact on the other stages in the supply chain. Off late, businesses particularly manufacturing sector has shifted to low stock-quick order model of supply. This sort of model is good when the economic conditions are good but when there are plunging trading conditions manufacturers can be risk prone and the supplier fails. Suppliers are dependent on the others to perform their functions, thus during hard times every party gets exposed to risk through the weakest link in the chain. The impact of supply chain can be on the financial and management time, disturbance in the production lines, delay in deliveries, inefficiency, increased costs etc and this may in-turn lead to breach of contracts claims. Thus insolvency of one link may create a domino effect up and down the supply chain having a ripple effect into a wider…show more content…
3) Insolvency Of Financial Intermediaries:- One of the most poignant problems in the development of financial markets is the regulatory treatment of the insolvency of financial intermediaries. In modern times financial structure mostly rests on intermediaries, the scope and functions of them is increasing and enhancing. To rise finance intermediaries are becoming inevitable, companies rely on them for the huge gamut of services they render. This developments have affected the financial activities, have a impact on the functioning of securities markets and holding of securities by private and institutional investors. In developing economy, lack of confidence in the functioning of the securities markets, trust on the solvency position of financial intermediaries are the factors that hamper the growth of security market and investment, having negative impact on the confidence of private

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