The economy is going through a period of unprecedented financial and economic crisis in the last half century, driven by a collapse whose root causes are found in the U.S. housing sector. Problems in the U.S. economy have expanded real estate and other areas of activity not only in the United States because relatively complex mechanisms for transfer of credit risk imposed by financial intermediaries. According to Federal Reserve Chairman Alan Greenspan U.S. by 2006, the wave of instability caused by 'credit tsunami occurs once a century "evolved from one sector to another, first in the banking sector and real estate other financial markets, then all matters affecting the real economy.banking crisis, global markets, credit growth

Iudit FODOR

Rodica Viorica COANA

English

Research Papers in Economics

250                                                                      Finances - Challenges of the Future 
   
1.  General considerations 
 
Contemporary economies are facing 
a  financial  and  economic  crisis  which 
appears to be unprecedented in the last 
half  century.  It  is  well  known  that 
international financial market turmoil was 
triggered  by  the  mortgage  market  crisis 
with high risk (subprime) in the U.S. This 
has  disturbed  the  entire  U.S.  financial 
system,  and  much  of  the  international 
financial  markets.  It  seems  that  the 
current  financial  crisis  has  roots  well 
established because it dates from 1977, 
when  the  American  state  approved  the 
federal  law,"  Community  Reinvestment 
Act”  in  order  to  support  needy  people 
who could not buy a house. The current 
crisis  has  caught  the  attention  of  the 
entire world and exceeds the boundaries 
of  the  sectors  initially  affected  by  it. 
Recent analysis of the impact of the crisis 
all converge on the following point: after it 
hit  the  advanced  and  emerging 
economies, the "third wave" of the crisis 
is  now  affecting  developing  countries. 
(IMF  -  implications  of  global  financial 
crisis  on  low-income  countries,  March 
2009).  In  this  context,  we  can  say  that 
events  that  have  occurred  since  the 
second half of 2007 and up to now, have 
shown  that  interdependencies  and 
correlations  between  financial  markets, 
banking  and  real  world  economies  are 
much  stronger  than  estimated  by 
specialists.  
 
 
 
2.  Effects of the ongoing crisis on the 
contemporary economies 
 
       The economic crisis has affected the 
volume of world merchandise exports. As 
can be seen in Chart No. 1, the decrease 
of trading volume was the highest in the 
last 40 years.  
 
Chart  number  1.  The  evolution  in  global 
volume of exports of goods in the period 
1965-2009 (annual percentage) 
 
Source: WTO: 2010 Press Releases 
 
Major effect of the crisis was truly 
felt in 2009, when U.S. GDP decreased 
by 2.4%, while the U.E. GDP decreased 
by  4.2%.  From  Chart  No.2  presented 
below it can be noticed that since 2008, 
also as an effect of the crisis, economic 
growth  declined  and  the  GDP  in  both 
major  economic  regions  slipped  on  a 
downward slope compared with 2006.  
 
 
 
 
 
 
 
 
THE ADJUSTMENT OF BANKING SYSTEMS TO THE 
DEMANDS OF CONTEMPORARY ECONOMIES 
  
Rodica – Viorica COANĂ, PhD student 
Iudit FODOR, PhD student 
University of Craiova 
 Year IX, No.11/2010                                                                                                   251 
Chart number 2 Evolution of U.S. and EU 
GDP in 2006-2009 
 
Source: WTO: 2010 Press Releases 
 
Also,  the  two  largest  economic 
areas were affected in their export rates: 
U.S.  export  value  began  to  drop 
significantly  reaching  a  decrease  of 
13.9% in 2009 compared to 2007 and in 
the European Union the decrease was of 
14.8%.  The  decrease  was  also  felt  to 
imports in both regions. Thus the fall in 
imports came in late 2009 versus 2006 to 
14.5%  for  EU  and  16.5%  for  S.U.A. 
These  downward  trends  may  be 
observed in chart number 3. 
 
Chart number 3.  Evolution of  the  volume 
of imports and exports in the U.S. and EU 
 
Source: WTO: 2010 Press Releases 
   
World  trade  of  goods  has 
increased in both U.S. and EU by 2008. 
In 2009, both world trade  and the U.S.’ 
and  U.E’s  declined  sharply.  With  one 
common aspect: all reductions were over 
20% in the U.S: in late 2009 the export 
value  reached  -18%,  imports  reached  -
26% and in the EU, in the same period, 
exports  reached  -  23%  and  imports 
reached  -25%.  Decreasing  evolution  of 
world  trade  in  goods  in  2007-2009  is 
illustrated in chart number 4.  
 
 
 
Chart number 4. Evolution of world trade 
in goods 
 
Source: WTO: 2010 Press Releases 
 
The  crisis  has  left  its  mark  in 
terms of trade in services as well. Thus, 
in 2009, there were significant decreases 
compared with 2008: at global level, the 
decrease was 13% for providing services 
exports and 12% for imports, given that, 
until the crisis, the growth of exports of 
transport services was an alert one. For 
example,  in  the  EU  in  2008  it  was 
registered an increase of 88% compared 
with 2003. 
In my approach I presented only 
a few issues that I considered significant, 
aspects  that,  in  my  opinion,  highlight 
broadly  the  state  of  contemporary 
economies  in  the  context  of  economic 
and  financial  crisis  that  Romania  is 
currently undergoing as well.  
  
3.  Implications for global banking 
 
Turmoil  in  international  market,  led 
primarily to customers’ state of panic and 
distrust in the banking system manifested 
mainly by withdrawing their deposits held 
by  banks,  and  secondly  to  freezing 
lending  activity,  which  led  automatically 
to contraction in real savings. 
Also  due  to  bad  loans  at  a  global 
level,  losses  of  commercial  banks  are 
huge.  According  to  recent  estimates  of 
the  Goldman  Sachs  Investments  bank, 
the financial industry losses amounted to 
705  billion  euro.  International  banking 
system  has  experienced  resounding 
failures  of  banking  giants, 
nationalizations,  or  even  the  selling  of 
banks  for  modest  sums.  For  this,  we 
have the following examples: 252                                                                      Finances - Challenges of the Future 
• U.S. bank failures and takeovers of 
financial  institutions  by  state  or  by 
competition  have  succeeded  rapidly. 
(Washington  Mutual  was  taken  over  by 
JPMorgan) 
•  the  example  of  banking  giant 
Fortis,  which  has assets  exceeding  440 
billion  euro,  and  the  governments  of 
Belgium,  Netherlands  and  Luxembourg 
agreed to buy 49% of bank assets for 11 
billion euro to save it from bankruptcy. 
•  Dexia,  second  Belgian  bank, 
seems to be hit by financial crisis as well: 
its  shares  fell  by  30%,  despite 
assurances  by  officials  that  the  bank's 
situation is good. 
• Germany also would be obliged to 
consider  the  nationalization  of  some 
banks, if the turmoil continues on global 
markets,  said  recently  the  German 
Finance Minister Peer Steinbrueck. 
To  adapt  to  the  demands  of 
contemporary economies and to counter 
the  effects  of  the  crisis  on  international 
banking  system,  banks  became  more 
reluctant  to  face  the  risk, reducing  both 
lending  to  non-financial  institutions  and 
transactions  in  the  interbank  market. 
Interest  rates  on  the  interbank  market 
have  met  significant  changes,  affecting 
the  normal  course  of  exchange  of  cash 
between  banks  and  increasing  funding 
costs.  Also  in  order  to  adapt  to  global 
economic situation, efforts are sustained 
by  banks  to  stimulate  lending  and 
remove uncertainty as loss of confidence 
in  global  financial  system  has  led  the 
international economy towards recession. 
Banks currently suffer most from loss of 
mutual  trust,  thus  creating  an  artificial 
shortage  of  liquidity.  In  Romania,  the 
profitability of the banking system during 
2009 was positive, although banks profit 
declined.  No  bank  in  the  Romanian 
banking  system  has  been  in  default 
although  lending  decreased  in  intensity 
and  variation  in  non-governmental 
balance  registered  negative  values  for 
several  months.  Cost  of  credit  also 
increased significantly due to worsening 
of the economic environment and due to 
attraction of financial resources rarer and 
more expensive. The number of banking 
establishments fell by over 90 branches 
in 2009 and over 3,000 bank employees 
have  lost  their  jobs.  Relatively  positive 
financial  results  and  high  degree  of 
capitalization  of  banks  supported  the 
Romanian  banking  system  to  withstand 
shocks induced by this period marked of 
turbulence and uncertainty.  
 
4.  Conclusions 
In conclusion, late awareness of 
the  financial  crisis  by  governments  of 
major  countries  or  economic  areas 
affected  by  major  crises  has  created 
confusion  and  fear  in  financial  markets. 
Loss  of  confidence  is  now  observed 
globally,  particularly  in  marketable  real 
estate  securities  but  also  in  the  entire 
lending  process,  given  that  the 
exposures  calculated  for  normal 
economic  circumstances  seem  affected 
by  interest’s  market  volatility,  and 
especially  by  the  volatility  of  market 
values of real estates guarantees. 
Therefore,  financial  and 
economic  environment  is  constantly 
changing  and  the  banking  system,  both 
internationally and within countries of the 
world  is  now  under  the  impact  of  deep 
changes,  caused  primarily  by  extended 
global  economic  downturn,  secondly  by 
increased  economic  integration 
processes (the case of Romania) and not 
least by the improvement of information 
technology. 
Currently it can be said that the 
role of banks should be compared with a 
spearhead,  which  is  available  for  the 
monetary  authorities  in  order  to  ensure 
liquidity  in  economy  and  the  financial 
resources  that  support  economic 
development of each country through the 
lending process. Economically, credit is a 
real institution, being the most important 
financing  source  of  economic  growth. 
Through credit, one can obtain financial 
resources  not  available  to  the  investor, 
thus anticipating an investment potential Year IX, No.11/2010                                                                                                   253 
that  he  could  materialize  somewhere  in 
the  future.  Anticipating  investment 
translates  into  obtaining  profit  faster, 
leading  to  a  growth  process  which, 
nationally,  is  evidenced  by  accelerated 
economic growth. On the other hand, by 
lending  you  stimulate  consumption, 
which in turn generates economic growth 
through  early  recovery  of  production 
results. 
The  main  objective  of  national 
governments  should  be  the  concern  to 
direct  most  credit  towards  business 
generating  growth  directly,  correlated 
with  credit  of  consumption  of  business’ 
results whether they are products, goods 
or services.  
In  this  unstable  world  economic 
context, it is difficult to establish the clear 
trends  in  the  evolution  of  banking 
systems  worldwide  and  at  a  national 
level,  and  secondly  to  establish  the 
development  of  interdependence  of 
states of the world, especially in view of 
Romania, which is in the process of EU 
integration  and  adaptation,  having  to 
adjust  its  economic  and  monetary 
policies to  the  policies and directives of 
the European Union. 
 
 
 
 
 
 
 
Cerna, S. (2008)  Turbulenţele  de  pe  pieţele  financiare  internaţionale:  cauze, 
consecinţe, remedii, în „Oeconomica”, Nr. XVII, Vol. 2, pp. 51-67; 
*****  Business Standard; 
*****  www.zf.ro; 
*****  www.bnro.ro; 
*****  www.newsin.ro; 
*****  http://www.bloombiz.ro/finantemoodys-2010-va-fi-dificil-pentru-
bancile-romanesti; 
*****  FMI - (Implicatiile crizei financiare mondiale asupra tărilor cu venituri 
reduse), martie 2009. 
 
 
REFERENCES 
 

The adjustment of banking systems to the demands of contemporary economies

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