Index IntroductionDeterminants of financial crisesReforms of financial regulationMeasures of determinantsFinancial crisis in 2007-2009ConclusionIntroductionA financial crisis is a situation on a global scale in which the short-term cessation of large fiscal measures occurs contracts that cause a wide range of turbulence in the financial sector (Allen, 2012). A financial crisis is characterized by high levels of failure of banking institutions and a significant decrease in the value of assets. Usually, a crisis in the financial sector affects the economy on a global scale causing substantial consequences on economic activities leading to a large recession coupled with low investment and employment rates (Cihak, 2013). Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an Original Essay The classification of financial crisis can be classified into three main categories which include debt crisis, banking crisis and currency crisis (Salotti, 2015) . However, this categorization is not primarily exclusive as some financial crises are “twin crises”. The twin financial crisis occurs when the currency depreciates worsening the banking sector problem through the financial institution's exposure to foreign currency (Shleifer, 2010). Therefore, a crisis within the banking sector occurs when financial markets experience a considerable number of defaults, thus experiencing difficulties in repaying contracts in real time (Reinhart, 2011). For example, the Great Depression of the 1930s had a major impact on the reputation of the macroeconomic system. theory and by extension that influence financial markets and institutions (Garcia, 2013). As a result, the outbreak of the 2008 financial crisis changed not only various financial institutions, but the crisis further extended to influence long-standing theories and norms, beliefs and principles related to the regulation of financial systems. As a result, the structural organization of the financial system has focused more on supervision and reform of macroprudential regulation (Piskorski, 2010). As a result, financial regulatory reforms have triggered a lively debate among various financial markets and institutions, academics and practitioners. Subsequently, the Basel Committee initiated a consultative document to assess the importance of the role of financial markets and institutions (Kim, 2013). The committee focused on stabilizing financial systems by arguing that the cost of new financial regulatory reforms will be relatively cheaper than their benefits (Kim, 2013). However, contrary to the arguments of the Basel Committee, the banking sector was in support of the position that the new financial regulatory reforms would negatively cripple economic growth due to the high costs of financial intermediaries in turn on economic systems (Allen, 2012) . Nonetheless, some academics and practitioners argue that the financial principles and beliefs endorsed by the Basel Committee are more likely to ensure a more resilient financial system (Cihak, 2013). Therefore, it is essential to evaluate a wide range of banking indicators such as financing strategy, regulation, business model, market structure and stability so as to evaluate the causes of the financial sector crisis as witnessed in 2007-2009. Furthermore, an assessment of the stability, efficiency, profitability and quality of the banking sector and the measurement of financial globalization would be usefulto explain and consequently evaluate the ex post impact of the 2007-2009 financial crisis. Determinants of financial crises According to the study conducted by Allen on Financial crisis, structure and reform, various factors related to financial markets and institutions, such as financial innovations, restrictions and regulatory measures, mainly contributed to the global financial crisis of 2007-2008 ( Allen, 2012). Liberalization and deregulation of financial institutions have played a more significant role in creating a financial crisis following the failure of regulators to control and exploit various risks and uncertainties within the system. banking sector (Allen, 2012). For example, the multiple activities of the "shadow investment system", mainly by non-bank commercial organizations such as investment banks, were not subject to strict financial regulations as custodian banks. As a result, tax innovations and securitization helped accelerate the asset boom leading to an increase in the level of financial leverage. Financial Regulatory Reforms A study conducted by Kim on regulatory reforms within commercial institutions indicated that consumers tend to have a productive capacity for complex financial monitoring products (Kim, 2013). Therefore, prudent and appropriate reforms of financial regulation are significant in terms of maintaining and stabilizing financial markets and institutions (Kim, 2013). Nonetheless, some academic scholars and practitioners argue that strong economic regulations and supervision are central to the overall picture of the role of financial regulations, while others argue for lax supervision (Piskorski, 2010). As a result, some of the financial regulatory reforms have been implemented in the banking sector. However, they vary from country to country. Regulatory measures applied include monitoring of the private banking sector and capital regulation on the minimum amount requirement (Salotti, 2015). Furthermore, key indices such as guidelines on asset and liability diversification procedures have been added to the regulatory measures. According to Garcia, the complexity of financial instruments, especially for the transfer of risks, has contributed to the vulnerability of banking institutions and to a greater vulnerability to small securities (Garcia, 2013). As a result, reasonable supervisory restrictions on financial transactions become more crucial to ensuring stability within the financial sector. His findings indicated that a financial crisis could be contained through stringent entry requirements. However, Reinhart argues that a banking system with stringent entry requirements increases its capacity for robustness. This is because current entry requirements safeguard the banking sector by preventing it from taking excessive risks and thus facilitating a competitive banking environment (Reinhart, 2011). regulatory reforms in the banking sector for 143 countries (Salotti, 2015). The results showed that regulatory restrictions in the banking sector regarding insurance, real estate and securities mainly contributed to the financial crisis of 2007-2009. This is because there were no strict entry requirements. Typically, entry requirements state what is needed to obtain a banking license, as opposed to diversification which assesses eligibility and the correct procedures and guidelines to carry out asset diversification and enable the bank to lend to foreign countries. Typically, investment regulation measures the extent to which banking institutions implement investment restrictionssupervision above all of the required assets. On the other hand, private monitoring measured the degree to which financial regulatory reforms allow the private banking sector to keep tabs on commercial institutions. Therefore, according to research conducted by Shleifer, capital regulation can also lead to a financial crisis. This is because stricter capital regulations destabilize the financial institution. A study on banking instability, conducted by Shleifer, revealed that the extent of government-owned financial institutions has a higher degree to which banking sector assets are held by the government. As a result, government-owned financial institutions are more likely to experience a crisis. This is because some officials within the state may not have adequate skills in managing the institution and therefore make the banking institution less competitive. A less competitive banking sector is weak, making it difficult for the country to defend its local currency when a crisis occurs in the foreign exchange markets. Financial Innovation Among the numerous studies conducted on the causes of a crisis in the financial sector, only a few explore the effects of advances in the financial sector. This may be due to the vagueness of the definition of financial innovation or the lack of readily available information (Piskorski, 2010). Various studies on financial innovation mainly use the number of patents to measure the level of innovation. Therefore, the pragmatic approach adopted by this study was able to efficiently calculate the aggregate index as a proxy used to evaluate the extent of progress within the financial sector in each particular country. The study used available cross-country data to create a single representation to determine the impact of financial modernization regarding the role financial markets played in the causes of the banking sector turmoil in 2007-2009. Financial crisis in 2007-2009The global economic crisis of 2007-2009 led to a global collapse of the economy and the consequent loss of guarantee of the financial system (Cihak, 2013). However, despite some positive and critical economic indicators, the global economy remained uncertain and fragile. The recent global financial crisis must lead to a drastic economic collapse that extends from one country to another. For example, in the case of the sovereign debt crisis in Greece, several countries in Europe and beyond suffered severe and contagious effects as a result of the crisis. However, the severity of the impact of the financial crisis varies from country to country. other. Therefore, this raises a fundamental research question of assessing and determining the key factors influencing the degree and frequency of turbulence in the financial sector and, by extension, the causes of a financial crisis in the banking sector in 2007–2009. studies conducted by academic scholars, practitioners, and financial markets and institutions have indicated that hyperactive progress in the banking sector and deregulation in the business sector have been attributed to different types of crises, especially in recent decades (Allen, 2012). For example, the inability of financial regulatory and supervisory agencies to keep pace with the rapid development of the financial sector, its products and practices has played a significant role in the intensification of financial crises. Furthermore, investment and lending guidelines and regulations adopted by some banking organizations in past years may have contributed to the recent financial crisis and consequently curbed fiscal regulations on the banking sector. In contrast, Eichengreen and Portes (1987).