FINANCIAL CRISIS & ACCOUNT AGGREGATOR

LET’S KNOW WHAT IS A FINANCIAL CRISIS?

A financial crisis is any of a broad variety of situations in which some financial assets suddenly lose a large part of their nominal value. It includes a stock market crash, financial bubbles currency crisis and sovereign defaults.

FINANCIAL CRISIS: SUB-PRIME CRISIS HOW DID IT HAPPEN?

Almost everyone knows when the last global financial crisis took place and who is the reason for it. But what most don’t know is how did that happen well let’s see what happened how did the crisis take place…..!

Usually, while getting a home loan we go to a bank apply for a loan, after processing some legal steps and verification we get the loan amount and the bank keeps our document until the final payment. This type of loan is called prime mortgages, since there was more demand for houses in the US market the real estate market has gone up everyone was interested to buy a house, but not everyone can apply for a bank loan right to apply for a bank loan we need some collateral documents like income statement and some other essential documents with a down payment amount. Banks started to give a new type of loan called sub-prime mortgages because of a decreasing number of prime mortgages. Sub-prime mortgages are providing loans without any collateral documents and down payments.

A good video explaining about sub-prime mortgages from the big short movie:

https://www.youtube.com/watch?v=e1iGzwte7rQ

Investment bankers bought those mortgages from banks and sold to investors as shares based on their credit rating which ranges from ‘AAA-(safe) from to BBB-(risk)’ these ratings are based on their bond value-from which CDO pools they are. AAA rating bonds are usually sold by the US treasury but they lowered the interest rates from 4% to 1% to balance the economy which was bad news for investors, but using the opportunity bankers stared to buy more debt from US treasury and along with more FII all across the world.

The process of money circulation from the public to investors through banks and investment bankers was going smoothly until the banks started giving SUB-PRIME MORTGAGES. Which later did not give proper returns upon its BBB rating bonds this was the starting point of crisis, one by one all the BBB bonds went default then the prime mortgages also started going default because of lowering housing price as the NPA of banks become more due to BBB bonds default and finally, the money flow stopped since one by one all those AAA bonds also went default. That’s how the crisis began. There are few other things involved in this crisis like credit default swaps which also has some major role to play in this crisis.

Here is the brief video of the crisis, if you want to know much about this:

https://www.youtube.com/watch?v=bx_LWm6_6tA

I suggest watching a movie called THE BIGSHOT to learn a few other things related to this financial crisis like credit default swaps and a few more concepts related to CDO.

ACCOUNT AGGREGATOR:

Your digital footprint is everywhere. Unfortunately, it’s locked up in silos operated by different agencies. For instance, your bank has access to your savings account information and the transactions you’ve made using this account. Data about your other investments are tied up elsewhere mutual fund aggregators, mutual fund houses, etc. Your insurance company has data related to your annual premium payments. And that’s locked up somewhere else. In essence, there’s no way you can access your data from a single touchpoint.

Account aggregators try to bring together disparate agencies like banks, mutual fund houses, etc. and connect them to other entities that could use this information to provide wide-ranging solutions that could make decisions easier for banks.

This is how an account aggregator account looks like a short video by Pioneer bank:

https://www.youtube.com/watch?v=TxTCV97fZok

RELATIONSHIP BETWEEN CRISIS AND ACCOUNT AGGREGATOR…!

The main reason behind the 2008 financial fiasco is the sub-prime mortgages if there were no sub-prime mortgages there is no crisis. Every bank needs to spend a lot of time, money, people upon those document processing and verifications if there is a thing called account aggregator which says all about the personal income and expenditure it will be easy for the banks to evaluate the creditworthiness of the person.

Here is a good video explaining the relationship benefits of AA:

https://www.youtube.com/watch?v=wpjlngvhkl0

PROS AND CONS OF ACCOUNT AGGREGATOR:

We already know the pros it easy for both banks and loan opting customers. Another purpose of using the account aggregator is to reduce the credit risk. But you can’t use data from an Account Aggregator (AA) unless you are willing to share what you have. If a bank were to refuse to share information, they (a bank which is looking for AA) would probably not be able to use information about a customer (from another bank) and offer their services on top. The sad part is rumoured has it that some of the biggest banks in India are already on board.

A good video showing how does an account aggregation work:

https://www.youtube.com/watch?v=H1sicW5mn2g&t=111s

And that's me saying about the crisis and account aggregation in a concise and precise manner what do you think of this account aggregation are ready to share your financial data? Do you think this fin-tech will help you in any way? Let's discuss below in the comment section..!