Study On The Main Determinants Of Bank Failure Finance Essay - Free Essay Example

Sample details Pages: 4 Words: 1094 Downloads: 7 Date added: 2017/06/26 Category Finance Essay Type Analytical essay Did you like this example? During the last decade, banking industry has become highly competitive, resulting in many banks to use aggressive strategies in order to survive or maintain their respective share in the market. This tendency of these financial institutions to become more aggressive when confronted with competitive pressures has led many banks to fail. Banking industry has gone through significant changes and is continuing to undergo major structural alterations. This dynamic structure results in an uncertain environment for the industry. The recent financial crisis has raised a large number of concerns about the strength of the current banking system to provide stability to the financial markets. Banks taking too much risk are highly prone to fail. Banks may fail if equity is insufficient to provide a safe cushion to write down any non-performing loans. Before recent financial turmoil, banks were more concerned about their profitability. They attempted to maximize profits t o increase shareholders wealth by increasing their financial leverage. A large deposit base provided for high financial leverage for banks, while their equity cushion continued to diminish. Most banks were using a ratio of more than twenty times debt compared to their equity. Low level of equity provided a very small cushion for the banks in case of a financial turmoil. A bank with three percent equity could suffer a loss of all its shareholders wealth if it lost just a minor fraction of its loan assets. For example, bank with an equity base of 10 billion pounds and a loan base of as high as 300 billion pounds, would have lost all its equity with a decrease of 3.33 % in the value of its loan assets. Banks need to manage their liquidity risk with extreme caution. A bank that maintains to little liquid reserves can go bankrupt if it fails to meet its obligations on time. These obligations include payment on demand deposits and interest payments to depositors holding cash in thei r saving accounts. If the bank is holding too little cash, it can usually borrow money through inter-bank borrowing at the federal funds rate. However, at times of financial crisis the liquidity of the market could be low. In the recent financial crisis rumours about bank failures resulted in a run on banks. Depositors wanted to withdraw their money before a suspected bankruptcy. On a usual day banks only anticipate a certain maximum percentage of funds to be withdrawn and hence they maintain cash to meet regular operational needs. However, in case of a run on banks all depositors simultaneously appear at bank counters to withdraw their deposits. Such a panic situation can result in bankruptcy of any financially sound bank in a matter of hours. Liquidity risk requires active management, as too much liquidity can be as much of a problem as is too little liquidity. Banks operate in a highly competitive environment and they are always competing for deposits. Those banks that prov ide higher interest rates relative to competition are able to attract more deposits and thereby expand their operations. Those that provide low interest rates suffer the risk that depositors will withdraw their funds to banks, which pay a higher return. To provide a higher return a bank needs to make profitable loans to other parties. Extending loans for businesses and for consumers restrict the liquidity of the banks. Therefore, there is a trade-off involved and the management has to choose the optimum level between return and liquidity. An economic crisis results in high levels of unemployment and can cause the non-performing loans to increase significantly. Lack of diversification into various asset classes in financing loans can result in major bank failures. During the recent banking crisis, subprime lending was at its peak. A component that lacks diversification was the subprime mortgage lending. A large number of mortgagees were speculating on housing prices and did not ha ve sufficient means to pay the dues. Banks were lending on zero down payment options where the mortgage holder had a call option to exercise. If housing prices increase, the mortgagee can sell the house, pay the mortgage amount and make a profit without any investment. However, if housing prices go down the mortgagee only lost the payments made already, which acted as an option premium. As the housing market collapsed, the losses were to be borne by the banking industry. Mortgages are pooled together to form collateralized mortgage obligations. These securities make mortgages from illiquid investments into liquid securities that sell in the secondary market. The high interest rates paid on mortgages and the liquidity feature of the securities attracted investors to invest trillions. The high demand for mortgage-backed securities in turn resulted in too much capital availability to create excessive low quality mortgages. As economy staggered and unemployment increased a high rate of mortgage default created the subprime crisis resulting in many banks to fail. As competitive pressures, increase only banks with high level of efficiency can survive. Larger banks enjoy both economies of scale and economies of scope. In an economic downturn, small and medium banks cannot maintain their net interest margins and tend to respond weakly to competitive pressures. Therefore, in an attempt to survive banks initiate mergers and acquisitions. Through mergers, these banks aim to improve efficiencies and reduce costs in order to improve their net interest margins and survive the hard times. Mergers do not always attain their desired goals. Many times the managements do not get along well, at other times the estimated synergies of the merger tend to be overestimated. Also, valuation models could have been erroneous resulting in huge write down of goodwill assets in the years to come. This can also wipe away the equity of the bank and eventually cause a bank to fail. Banks seek to maintain an active match between their assets and liabilities. A large gap between assets and liabilities can result in adverse movements. If a bank has a positive gap, its assets are more interest rate sensitive than its liabilities. The goal of banks is to maintain minimum interest rate exposure and keep the gap at a minimum. At times bank management can get more ambitious and take bets on interest rate movements. In this case, an unexpected movement in interest rates can be disastrous for a bank. In conclusion, a bank can fail due to various reasons mostly because of poor risk management techniques. Banks could be lending aggressively and create a large pool of subprime assets or they could maintain too little liquidity to meet their obligations during a financial crisis. All these reasons together can cause a bank to fail. Don’t waste time! Our writers will create an original "Study On The Main Determinants Of Bank Failure Finance Essay" essay for you Create order

Study On The Main Determinants Of Bank Failure Finance Essay - Free Essay Example

Sample details Pages: 4 Words: 1094 Downloads: 7 Date added: 2017/06/26 Category Finance Essay Type Analytical essay Did you like this example? During the last decade, banking industry has become highly competitive, resulting in many banks to use aggressive strategies in order to survive or maintain their respective share in the market. This tendency of these financial institutions to become more aggressive when confronted with competitive pressures has led many banks to fail. Banking industry has gone through significant changes and is continuing to undergo major structural alterations. This dynamic structure results in an uncertain environment for the industry. The recent financial crisis has raised a large number of concerns about the strength of the current banking system to provide stability to the financial markets. Banks taking too much risk are highly prone to fail. Banks may fail if equity is insufficient to provide a safe cushion to write down any non-performing loans. Before recent financial turmoil, banks were more concerned about their profitability. They attempted to maximize profits t o increase shareholders wealth by increasing their financial leverage. A large deposit base provided for high financial leverage for banks, while their equity cushion continued to diminish. Most banks were using a ratio of more than twenty times debt compared to their equity. Low level of equity provided a very small cushion for the banks in case of a financial turmoil. A bank with three percent equity could suffer a loss of all its shareholders wealth if it lost just a minor fraction of its loan assets. For example, bank with an equity base of 10 billion pounds and a loan base of as high as 300 billion pounds, would have lost all its equity with a decrease of 3.33 % in the value of its loan assets. Banks need to manage their liquidity risk with extreme caution. A bank that maintains to little liquid reserves can go bankrupt if it fails to meet its obligations on time. These obligations include payment on demand deposits and interest payments to depositors holding cash in thei r saving accounts. If the bank is holding too little cash, it can usually borrow money through inter-bank borrowing at the federal funds rate. However, at times of financial crisis the liquidity of the market could be low. In the recent financial crisis rumours about bank failures resulted in a run on banks. Depositors wanted to withdraw their money before a suspected bankruptcy. On a usual day banks only anticipate a certain maximum percentage of funds to be withdrawn and hence they maintain cash to meet regular operational needs. However, in case of a run on banks all depositors simultaneously appear at bank counters to withdraw their deposits. Such a panic situation can result in bankruptcy of any financially sound bank in a matter of hours. Liquidity risk requires active management, as too much liquidity can be as much of a problem as is too little liquidity. Banks operate in a highly competitive environment and they are always competing for deposits. Those banks that prov ide higher interest rates relative to competition are able to attract more deposits and thereby expand their operations. Those that provide low interest rates suffer the risk that depositors will withdraw their funds to banks, which pay a higher return. To provide a higher return a bank needs to make profitable loans to other parties. Extending loans for businesses and for consumers restrict the liquidity of the banks. Therefore, there is a trade-off involved and the management has to choose the optimum level between return and liquidity. An economic crisis results in high levels of unemployment and can cause the non-performing loans to increase significantly. Lack of diversification into various asset classes in financing loans can result in major bank failures. During the recent banking crisis, subprime lending was at its peak. A component that lacks diversification was the subprime mortgage lending. A large number of mortgagees were speculating on housing prices and did not ha ve sufficient means to pay the dues. Banks were lending on zero down payment options where the mortgage holder had a call option to exercise. If housing prices increase, the mortgagee can sell the house, pay the mortgage amount and make a profit without any investment. However, if housing prices go down the mortgagee only lost the payments made already, which acted as an option premium. As the housing market collapsed, the losses were to be borne by the banking industry. Mortgages are pooled together to form collateralized mortgage obligations. These securities make mortgages from illiquid investments into liquid securities that sell in the secondary market. The high interest rates paid on mortgages and the liquidity feature of the securities attracted investors to invest trillions. The high demand for mortgage-backed securities in turn resulted in too much capital availability to create excessive low quality mortgages. As economy staggered and unemployment increased a high rate of mortgage default created the subprime crisis resulting in many banks to fail. As competitive pressures, increase only banks with high level of efficiency can survive. Larger banks enjoy both economies of scale and economies of scope. In an economic downturn, small and medium banks cannot maintain their net interest margins and tend to respond weakly to competitive pressures. Therefore, in an attempt to survive banks initiate mergers and acquisitions. Through mergers, these banks aim to improve efficiencies and reduce costs in order to improve their net interest margins and survive the hard times. Mergers do not always attain their desired goals. Many times the managements do not get along well, at other times the estimated synergies of the merger tend to be overestimated. Also, valuation models could have been erroneous resulting in huge write down of goodwill assets in the years to come. This can also wipe away the equity of the bank and eventually cause a bank to fail. Banks seek to maintain an active match between their assets and liabilities. A large gap between assets and liabilities can result in adverse movements. If a bank has a positive gap, its assets are more interest rate sensitive than its liabilities. The goal of banks is to maintain minimum interest rate exposure and keep the gap at a minimum. At times bank management can get more ambitious and take bets on interest rate movements. In this case, an unexpected movement in interest rates can be disastrous for a bank. In conclusion, a bank can fail due to various reasons mostly because of poor risk management techniques. Banks could be lending aggressively and create a large pool of subprime assets or they could maintain too little liquidity to meet their obligations during a financial crisis. All these reasons together can cause a bank to fail. Don’t waste time! Our writers will create an original "Study On The Main Determinants Of Bank Failure Finance Essay" essay for you Create order

Study On The Main Determinants Of Bank Failure Finance Essay - Free Essay Example

Sample details Pages: 4 Words: 1094 Downloads: 7 Date added: 2017/06/26 Category Finance Essay Type Analytical essay Did you like this example? During the last decade, banking industry has become highly competitive, resulting in many banks to use aggressive strategies in order to survive or maintain their respective share in the market. This tendency of these financial institutions to become more aggressive when confronted with competitive pressures has led many banks to fail. Banking industry has gone through significant changes and is continuing to undergo major structural alterations. This dynamic structure results in an uncertain environment for the industry. The recent financial crisis has raised a large number of concerns about the strength of the current banking system to provide stability to the financial markets. Banks taking too much risk are highly prone to fail. Banks may fail if equity is insufficient to provide a safe cushion to write down any non-performing loans. Before recent financial turmoil, banks were more concerned about their profitability. They attempted to maximize profits t o increase shareholders wealth by increasing their financial leverage. A large deposit base provided for high financial leverage for banks, while their equity cushion continued to diminish. Most banks were using a ratio of more than twenty times debt compared to their equity. Low level of equity provided a very small cushion for the banks in case of a financial turmoil. A bank with three percent equity could suffer a loss of all its shareholders wealth if it lost just a minor fraction of its loan assets. For example, bank with an equity base of 10 billion pounds and a loan base of as high as 300 billion pounds, would have lost all its equity with a decrease of 3.33 % in the value of its loan assets. Banks need to manage their liquidity risk with extreme caution. A bank that maintains to little liquid reserves can go bankrupt if it fails to meet its obligations on time. These obligations include payment on demand deposits and interest payments to depositors holding cash in thei r saving accounts. If the bank is holding too little cash, it can usually borrow money through inter-bank borrowing at the federal funds rate. However, at times of financial crisis the liquidity of the market could be low. In the recent financial crisis rumours about bank failures resulted in a run on banks. Depositors wanted to withdraw their money before a suspected bankruptcy. On a usual day banks only anticipate a certain maximum percentage of funds to be withdrawn and hence they maintain cash to meet regular operational needs. However, in case of a run on banks all depositors simultaneously appear at bank counters to withdraw their deposits. Such a panic situation can result in bankruptcy of any financially sound bank in a matter of hours. Liquidity risk requires active management, as too much liquidity can be as much of a problem as is too little liquidity. Banks operate in a highly competitive environment and they are always competing for deposits. Those banks that prov ide higher interest rates relative to competition are able to attract more deposits and thereby expand their operations. Those that provide low interest rates suffer the risk that depositors will withdraw their funds to banks, which pay a higher return. To provide a higher return a bank needs to make profitable loans to other parties. Extending loans for businesses and for consumers restrict the liquidity of the banks. Therefore, there is a trade-off involved and the management has to choose the optimum level between return and liquidity. An economic crisis results in high levels of unemployment and can cause the non-performing loans to increase significantly. Lack of diversification into various asset classes in financing loans can result in major bank failures. During the recent banking crisis, subprime lending was at its peak. A component that lacks diversification was the subprime mortgage lending. A large number of mortgagees were speculating on housing prices and did not ha ve sufficient means to pay the dues. Banks were lending on zero down payment options where the mortgage holder had a call option to exercise. If housing prices increase, the mortgagee can sell the house, pay the mortgage amount and make a profit without any investment. However, if housing prices go down the mortgagee only lost the payments made already, which acted as an option premium. As the housing market collapsed, the losses were to be borne by the banking industry. Mortgages are pooled together to form collateralized mortgage obligations. These securities make mortgages from illiquid investments into liquid securities that sell in the secondary market. The high interest rates paid on mortgages and the liquidity feature of the securities attracted investors to invest trillions. The high demand for mortgage-backed securities in turn resulted in too much capital availability to create excessive low quality mortgages. As economy staggered and unemployment increased a high rate of mortgage default created the subprime crisis resulting in many banks to fail. As competitive pressures, increase only banks with high level of efficiency can survive. Larger banks enjoy both economies of scale and economies of scope. In an economic downturn, small and medium banks cannot maintain their net interest margins and tend to respond weakly to competitive pressures. Therefore, in an attempt to survive banks initiate mergers and acquisitions. Through mergers, these banks aim to improve efficiencies and reduce costs in order to improve their net interest margins and survive the hard times. Mergers do not always attain their desired goals. Many times the managements do not get along well, at other times the estimated synergies of the merger tend to be overestimated. Also, valuation models could have been erroneous resulting in huge write down of goodwill assets in the years to come. This can also wipe away the equity of the bank and eventually cause a bank to fail. Banks seek to maintain an active match between their assets and liabilities. A large gap between assets and liabilities can result in adverse movements. If a bank has a positive gap, its assets are more interest rate sensitive than its liabilities. The goal of banks is to maintain minimum interest rate exposure and keep the gap at a minimum. At times bank management can get more ambitious and take bets on interest rate movements. In this case, an unexpected movement in interest rates can be disastrous for a bank. In conclusion, a bank can fail due to various reasons mostly because of poor risk management techniques. Banks could be lending aggressively and create a large pool of subprime assets or they could maintain too little liquidity to meet their obligations during a financial crisis. All these reasons together can cause a bank to fail. Don’t waste time! Our writers will create an original "Study On The Main Determinants Of Bank Failure Finance Essay" essay for you Create order

Study On The Main Determinants Of Bank Failure Finance Essay - Free Essay Example

Sample details Pages: 4 Words: 1094 Downloads: 7 Date added: 2017/06/26 Category Finance Essay Type Analytical essay Did you like this example? During the last decade, banking industry has become highly competitive, resulting in many banks to use aggressive strategies in order to survive or maintain their respective share in the market. This tendency of these financial institutions to become more aggressive when confronted with competitive pressures has led many banks to fail. Banking industry has gone through significant changes and is continuing to undergo major structural alterations. This dynamic structure results in an uncertain environment for the industry. The recent financial crisis has raised a large number of concerns about the strength of the current banking system to provide stability to the financial markets. Banks taking too much risk are highly prone to fail. Banks may fail if equity is insufficient to provide a safe cushion to write down any non-performing loans. Before recent financial turmoil, banks were more concerned about their profitability. They attempted to maximize profits t o increase shareholders wealth by increasing their financial leverage. A large deposit base provided for high financial leverage for banks, while their equity cushion continued to diminish. Most banks were using a ratio of more than twenty times debt compared to their equity. Low level of equity provided a very small cushion for the banks in case of a financial turmoil. A bank with three percent equity could suffer a loss of all its shareholders wealth if it lost just a minor fraction of its loan assets. For example, bank with an equity base of 10 billion pounds and a loan base of as high as 300 billion pounds, would have lost all its equity with a decrease of 3.33 % in the value of its loan assets. Banks need to manage their liquidity risk with extreme caution. A bank that maintains to little liquid reserves can go bankrupt if it fails to meet its obligations on time. These obligations include payment on demand deposits and interest payments to depositors holding cash in thei r saving accounts. If the bank is holding too little cash, it can usually borrow money through inter-bank borrowing at the federal funds rate. However, at times of financial crisis the liquidity of the market could be low. In the recent financial crisis rumours about bank failures resulted in a run on banks. Depositors wanted to withdraw their money before a suspected bankruptcy. On a usual day banks only anticipate a certain maximum percentage of funds to be withdrawn and hence they maintain cash to meet regular operational needs. However, in case of a run on banks all depositors simultaneously appear at bank counters to withdraw their deposits. Such a panic situation can result in bankruptcy of any financially sound bank in a matter of hours. Liquidity risk requires active management, as too much liquidity can be as much of a problem as is too little liquidity. Banks operate in a highly competitive environment and they are always competing for deposits. Those banks that prov ide higher interest rates relative to competition are able to attract more deposits and thereby expand their operations. Those that provide low interest rates suffer the risk that depositors will withdraw their funds to banks, which pay a higher return. To provide a higher return a bank needs to make profitable loans to other parties. Extending loans for businesses and for consumers restrict the liquidity of the banks. Therefore, there is a trade-off involved and the management has to choose the optimum level between return and liquidity. An economic crisis results in high levels of unemployment and can cause the non-performing loans to increase significantly. Lack of diversification into various asset classes in financing loans can result in major bank failures. During the recent banking crisis, subprime lending was at its peak. A component that lacks diversification was the subprime mortgage lending. A large number of mortgagees were speculating on housing prices and did not ha ve sufficient means to pay the dues. Banks were lending on zero down payment options where the mortgage holder had a call option to exercise. If housing prices increase, the mortgagee can sell the house, pay the mortgage amount and make a profit without any investment. However, if housing prices go down the mortgagee only lost the payments made already, which acted as an option premium. As the housing market collapsed, the losses were to be borne by the banking industry. Mortgages are pooled together to form collateralized mortgage obligations. These securities make mortgages from illiquid investments into liquid securities that sell in the secondary market. The high interest rates paid on mortgages and the liquidity feature of the securities attracted investors to invest trillions. The high demand for mortgage-backed securities in turn resulted in too much capital availability to create excessive low quality mortgages. As economy staggered and unemployment increased a high rate of mortgage default created the subprime crisis resulting in many banks to fail. As competitive pressures, increase only banks with high level of efficiency can survive. Larger banks enjoy both economies of scale and economies of scope. In an economic downturn, small and medium banks cannot maintain their net interest margins and tend to respond weakly to competitive pressures. Therefore, in an attempt to survive banks initiate mergers and acquisitions. Through mergers, these banks aim to improve efficiencies and reduce costs in order to improve their net interest margins and survive the hard times. Mergers do not always attain their desired goals. Many times the managements do not get along well, at other times the estimated synergies of the merger tend to be overestimated. Also, valuation models could have been erroneous resulting in huge write down of goodwill assets in the years to come. This can also wipe away the equity of the bank and eventually cause a bank to fail. Banks seek to maintain an active match between their assets and liabilities. A large gap between assets and liabilities can result in adverse movements. If a bank has a positive gap, its assets are more interest rate sensitive than its liabilities. The goal of banks is to maintain minimum interest rate exposure and keep the gap at a minimum. At times bank management can get more ambitious and take bets on interest rate movements. In this case, an unexpected movement in interest rates can be disastrous for a bank. In conclusion, a bank can fail due to various reasons mostly because of poor risk management techniques. Banks could be lending aggressively and create a large pool of subprime assets or they could maintain too little liquidity to meet their obligations during a financial crisis. All these reasons together can cause a bank to fail. Don’t waste time! Our writers will create an original "Study On The Main Determinants Of Bank Failure Finance Essay" essay for you Create order

Analysis Of The Kern s Article Gendered Urbanization

In relation to this, Kern’s article â€Å"Gendered Urbanization† illustrates how the factors attracting affluent women to the new condominiums in Parkdale are often the same instruments of oppression against the residents; according to her research, an attractive aspect of the new condominiums are security measures put into place to keep out the impoverished, and therefore dangerous, communities within Parkdale, such as a 24-hour concierge, double locks on all apartment doors, and a video monitor at the front desk. Even if â€Å"street[s] are very quiet† (Kern 372, III) the design of the buildings project and imply a criminal, unpredictable nature onto the original residents of Parkdale, and â€Å"enshrines these expectations into the built environment†. One resident interviewed stated â€Å" my [apartment] has twenty-four-hour security, and they don’t let anybody in without talking to security. Residents are not allowed to let anybody in, even if you open the doors† (Kern 372, IV). Therefore, the community lost to the shift in housing rates is not replaced with incoming residents, but rather the two communities are segregated by classist infrastructure and stereotypes that push the lower income people to the outskirts of Parkdale. This leads to a huge sense of isolation and unease in the community of original Parkdale residents because, not only are they threatened and disadvantaged financially, the implantation on these condominiums are actively keeping them out. In this same line of

Is Technology a Boon free essay sample

Technology is very much a part of modern life. Many people see technology as a force that has escaped from human control. Others feel that technology has improved the quality of life. Do you think that the contribution technology has made to modern life has been positive or negative? State your position on this issue and support it with appropriate examples. Technology has become a part of our lives. The issue of decide if this part is or not good for life is a controversial one. Many believe that contribution technology has made to modern life improve the quality of life in different aspects. Others believe that technology is out of human control and they see adverse effects in modern life. After careful analysis of different fields such as daily life, medicine, and education, I feel that contribution technology has made to modern life has been really positive and help to improve the quality of human lives. We will write a custom essay sample on Is Technology a Boon or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page The first reason for me to believe contribution technology made to modern life is just the daily life to unprecedented levels. Houses security systems, for example, connected to the police, is more powerfully because is build on technologies developed in the last years. As women increase their roles in society in the last times, daily homework such is cook, make laundry or vacuum take less time to do it than before, and its permits women to dedicate this time to other activities such is study, working, and other activities. Not only the daily live is benefited by advances of technology, another field is medicine. Thanks to advances in technology, many diseases that before was the cause of massive death, now is a past true, with the advances in technology, scientific and doctors find different vaccines to help people be healthier. The medical equipments advances help process such as surgery in a way that was never possible before. Nowadays, it is routine to get a heart replacement, which in the past such situations was simply impossible. Most importantly, we can see how scientific are in the process of looking for the solution to current diseases, and this will be possible, with the use of advanced medical technology. The best reason for me to applaud contribution technology made is in the field of education. I see how the advances in technology help students in their learning. For instance, the use of projectors and video conferences help in important amount in the process of learning; by using these approaches, different kinds of students intelligence can be addressed. Computers are another example of contribution that technology made to educational field. The use of well equipped computer lab is truly helpful for students because they have the chance to learn computer skills that are very important in almost all the work environments. Nowadays, teachers can find information they can use in their daily lessons. For instance, in a math class, teachers can use updated statistical information finding in computers (by just a click), and they can infuse these information into a lesson, making the lesson related with real life situations for students. In the final analysis, I think the benefits technology offer to improve the quality of life outweigh the deficits. I do not think technology is out of human control and by the exposed in lines above we can easily see how technology helps and improves the quality of human live in the daily routine, Medical advances allow humans to live longer and more healthy lives than ever before and technological advances make the learning more easy. Ultimately, Technology is developed by people to help improve quality of human lives and all of us are using technological advances in many different ways, also to indicate that it is incontrollable.

Altering The Face Of Science Essays - Genetics, Molecular Biology

Altering The Face Of Science Science is a creature that continues to evolve at a much higher rate than the beings that gave it birth. The transformation time from tree shrew, to ape, to human far exceeds the time from analytical engine, to calculator, to computer. But science, in the past, has always remained distant. It has allowed for advances in production, transportation, and even entertainment, but never in history will science be able to so deeply affect our lives, as genetic engineering will undoubtedly do. With the birth of this new technology, scientific extremists and anti-technologists have risen in arms to block its budding future. Spreading fear by misinterpretation of facts, they promote their hidden agendas in the halls of the United States congress. Genetic engineering is a safe and powerful tool that will yield unprecedented results, specifically in the field of medicine. It will usher in a world where gene defects, bacterial disease, and even aging are a thing of the past. By understanding genetic engineering and its history, discovering its possibilities, and answering the moral and safety questions it brings forth, the blanket of fear covering this remarkable technical miracle can be lifted. The first step to understanding genetic engineering, and embracing its possibilities for society, is to obtain a rough knowledge base of its history and method. The basis for altering the evolutionary process is dependant on the understanding of how individuals pass on characteristics to their offspring. Genetics achieved its first foothold on the secrets of nature's evolutionary process when an Austrian monk named Gregor Mendel developed the first laws of heredity. Using these laws, scientists studied the characteristics of organisms for most of the next one hundred years following Mendel's discovery. These early studies concluded that each organism has two sets of character determinants, or genes (Stableford 16). For instance, in regards to eye color, a child could receive one set of genes from his father that were encoded one blue and the other brown. The same child could also receive two brown genes from his mother. The conclusion for this inheritance would be the child has a three in four chance of having brown eyes, and a one in three chance of having blue eyes (Stableford 16). Genes are transmitted through chromosomes, which reside in the nucleus of every living organism's cells. Each chromosome is made up of fine strands of deoxyribonucleic acids, or DNA. The information carried on the DNA determines the cells function within the organism. Sex cells are the only cells that contain a complete DNA map of the organism; therefore, the structure of a DNA molecule or combination of DNA molecules determines the shape, form, and function of the [organism's] offspring (Lewin 1). DNA discovery is attributed to the research of three scientists, Francis Crick, Maurice Wilkins, and James Dewey Watson in 1951. They were all later accredited with the Nobel Price in physiology and medicine in 1962 (Lewin 1). The new science of genetic engineering aims to take a dramatic short cut in the slow process of evolution (Stableford 25). In essence, scientists aim to remove one gene from an organism's DNA, and place it into the DNA of another organism. This would create a new DNA strand, full of new encoded instructions; a strand that would have taken Mother Nature millions of years of natural selection to develop. Isolating and removing a desired gene from a DNA strand involves many different tools. Exposing it to ultra-high-frequency sound waves can break up DNA, but this is an extremely inaccurate way of isolating a desirable DNA section (Stableford 26). A more accurate way of DNA splicing is the use of restriction enzymes, which are produced by various species of bacteria (Clarke 1). The restriction enzymes cut the DNA strand at a particular location called a nucleotide base, which makes up a DNA molecule. Now that the desired portion of the DNA is cut out, it can be joined to another strand of DNA by using enzymes called ligases. The final important step in the creation of a new DNA strand is giving it the ability to self-replicate. Using special pieces of DNA, called vectors, that permit the generation of multiple copies of a total DNA strand and fusing it