What can financial markets and institutions do to prevent a financial crisis from occurring? Recommendations.

Expert Solution

They can not take unnecessary risk in the hopes of making extra profits. Financial Institutions and banks are systemically important because they let the whole economy function properly by letting the savers of capital meet those who need capital. If there is any problem with one major bank, it can affect the parties or clients associated with that bank and hence can have huge spillover effects. This problem also increases because banks are highly leveraged institutions. Hence, if in the greed of making extra profits they take on more and more risk, it can cause problems for everyone in the economy. Banks can also avoid this problem by properly maintaining the adequate capital requirements set up by the regulatory institutions.

jeff jeffy answered 3 years ago

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