Question

Discuss the effect on stock market investor confidence should bank customers, individuals and businesses alike, lose access to savings and undergo a loss of future purchasing power due to a bank failure.

Answer 1

Ans, The stock market is considered as a barometer of the economy. The way economy grows, it can be seen on the stock market, as the companies which form the stock market, are the one's which are the driver of the economies.

To invest in stock market an investor either puts his own money which is also savings, or he or she takes credit and invest in it. The line of credit comes through banks, which is one of the biggest source of credit to an investor who invests int he market. The financial market as a whole has bank as an integral part, it is through bank the money movement happens in form of credit, savings.

If, by any chance bank fails, and crashes, it will cause a panic in the economy in the countyr, and in the world as well..As all major economies are interconected the banking system is the window through which the meoney gobally and of the country flows. And iif that does colapse the window also shuts down.

Talking from domentic point of view, the first thing which will get hit will be individuals monetary power. The banks have savings kept which will be vanished, the future purchasing power of an individual will be gone, the current scenario will get affectred. The money flow will stop, whatever liquid amount an individual will have will be waht is there. The vlaue in that sense of money will incrase, but over all it will be gloomy.

Considering this, as mentioned stock market being a barometer of the economy, having drivers of the economy listed, will definitely crash. The market does move on sentiments, and considering the negative sentiments, it will plunge, the shares of banking will take the major hit, followed by the sectors which have direct connection with the banking. The way to control the plunge will be through buy, but,domestically the major investors will be not have much options to put in money if the bankings have failed. The banking system being the windo, even the global investors would not be able to support much.

The sentiments could be improved by taking some support measures, but the effect which stock market will show would be difficult to recover. Investors in future would not be able to invest without any line of credit, the flow of money into the market will stop, the flow of governemnt effect to control the panic would be less, as theri provisions use to go through the banking system, and now with the failure that would also reduce. The way to get back will be only through revivals of banking system. In 2008 we say USA doing the same with the banks which were too big to fail.

These scenarios shows how much importance banking system has, as it has intervoven and has increased its bounderies beyond financial system. With the daily life of an individuals, global impact, the decision enablers of the governement. Banks have a major role to play and their role will just keep becomign mprotant, as in the world we have only one institution llike that which has been set up for a purpose which has become very important and has been evolving with the lives of people. And that is banks.