Financial institutions within the shadow banking system aren’t subjected to similar regulations as depository banks permitting them to regret extra debt obligations associated with their capital base or financial cushion. Accounting standard-setters and regulators permitted depository banks like Citigroup to shift large amounts of liabilities and assets off-balance sheet into compound legal entities referred as structured investment vehicles. That led to masking of capital base masking of the company, risk or leverage taken. One news agency approximated that the leading four US banks ought to give back $500 billion and $1 trillion into their balance sheets in 2009. That extended crisis uncertainty concerning the financial position of banks.
The entities in off-balance sheet were likewise utilized by Enron being part of the scandal that led to the falling of the organization in 2001. In 1997, the Federal Reserve chairman (Alan Greenspan) fought to ensure the derivatives market remained unregulated. By 2008, the total OTC (over-the-counter) derivative notional value went up to $683 trillion with the derivatives being referred as “financial instruments of mass destructions”. Small business investors still finds it hard to secure affordable and easier bank loans with the financial institutions changing their regulations or even tightening their loaning patterns to prevent associated risks. Since the Great Recession incidence, various alternative lenders are witnessed in the market but one company that has hit the headlines is Equities First Holdings (http://www.equitiesfirst.com/team) with its special products (stock-based loans) reaching potential investors in all corners of the globe.
Investment banks leverage ratios greatly increased between 2003 and 2007. Before the crisis, financial firms had faced great leverage that increased their appetite for dangerous investments, hence minimizing their resilience when losses occur. Today, Equities First is a major provider of alternative lending services with the company registering an increasing traction of borrowers across the world.
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