Since August 2007, the U.S subprime mortgage crisis has not only threatened to the U.S. economy into a recession, but affected the global financial system. Furthermore, it brings a huge challenge to short-term and long-term development for global banking industry. Because the crisis has caused banks and other financial institutions became nervous about lending to other banks, banks generally lack of liquidity following the subprime mortgage crisis. Especially,banks depend heavily on the short-term money market or purchased funds market will be more likely to suffer liquidity problem in the future, and the Northern Rock is an example.
After subprime mortgage crisis, Northern Rock was unable acquire funding from money market because of credit freeze. In September 2007, Northern Rock was influenced by magnitude liquidity squeezes, and forced to a bailout from the Bank of England. It consequently suffered the bank run crisis. From Northern Rock crisis we can realize the importance of bank liquidity and diversified funding sources, though liquidity risk was rarely mentioned in the past. Swary (1986) also provided an explanation of the failure of the Continental Illinois National Bank in the U.S, which only had a small part of core deposit on its liability side. Thus, it is worth of discussing for bank liquidity risk.
The importance of human capital for asset pricing has been long recognized at least since Mayers (1972) and Fama and Schwert (1977). Recent domestic asset pricing literature shows that information about returns on human capital, or more precisely, labor income growth, is important for explaining both time series and cross sectional variations of expected stock returns. For example, Campbell (1996) and Jagannathan and Wang (1996) find that the risk premium associated with aggregate labor income growth helps explain the cross section of expected stock returns.
There is no doubt the financial services industry has been dealt a heavy blow by the economic crisis of late 2008 and the continuing downturn in the housing and stock markets which preceded it. The most challenging set of conditions in nearly a century confronts the financial services industry, and the degree to which the operating environment and global financial landscape have been altered by the turmoil is still unfolding.
Some institutions have been brought to their knees; others have been hobbled. Still others are tenaciously hanging on, surviving the crisis by a number of different techniques, including cost and workforce reduction strategies, strategic investment delays, curtailing market initiatives and M&A activities. But is it enough to simply hunker down and try to weather the storm? Is waiting out this tumultuous period a viable option for the financial services industry? When the dust settles on this period, it is the consensus among experts, the media, and research organizations that this crisis will have been transformative; that is, the financial services industry and the conditions under which it was operating before will not be the same.
