Impact of the credit crisis on investment banks Essay

The banking crisis of the late 2000s, often called the Great Recession, is labelled by many economists as the worst financial crisis since the Great Depression. Its effect on the markets around the world can still be felt. Many countries suffered a drop in GDP, small or even negative growth, bankrupting businesses and rise in unemployment. The welfare cost that society had to paid lead to an obvious question: ‘Who’s to blame?’ The fingers are pointed to the United States of America, as it is obvious that this is where the crisis began, but who exactly is responsible? Many people believe that the banks are the only ones that are guilty, but this is just not true. The crisis was really a systematic failure, in which many problems in the

Five years on from the beginning of the worst financial crisis he world has seen we are still in a perils state of low or negative growth and low interest

On September 15th 2008, the investment bank Lehman Brothers filed for bankruptcy. It was, and still is, the biggest bankruptcy filing in U.S. history , with Lehman’s holding $691 billion in assets at the time. The event was the catalyst for the current financial crisis. By the end of trading that day, $700bn had been wiped off the global stock markets. The Dow Jones had plummeted 500 points, its biggest drop since the terrorist attacks of 9/11 . Despite rumours and knowledge that Lehman’s was struggling, with its share price dropping daily, the huge drop in the financial markets was due to the huge shock. No-one had been expecting this, as it was anticipated

As one of the largest banking holding companies, Bank of America has taken a significant role during the whole process of the financial crisis. Compared with financial institutions whose business focused on specific fields, like investment banks or mortgage companies, Bank of Along got involved in activities in various fields that directly related with crisis – deregulation from big banks lobbying, mortgage originating, mortgage securitizing, and CDS dealing. Besides, as a systematically important financial institution, Bank of America was highly

While there is a considerable amount of controversy on the topic of gun rights on American college campuses, there is an abundant amount of facts and examples of prior events that can help sway an individual on their stance regarding this issue. Furthermore, after considering research and arguments from both sides of the spectrum it is clear that guns should be allowed on college campuses. Students and faculty deserve the right to be able to protect and defend themselves in the event of a school shooting. Legalizing concealed carry on college campuses is truly bound to save more lives, rather than take them.

Lehman Brothers was a company in the United States that operated in the financial market before the financial crisis that occurred in the year 2008. The company was listed in the New York Stock Exchange and its securities were publicly traded. For many years, the company was performing well. However, a failure to manage risks appropriately led to the collapse of the company. On September 15, 2008, Lehman Brothers, which was the fourth biggest investment bank in the U.S, filed for Chapter 11 bankruptcy protection. At the

The global financial crisis of 2008 that reeked havoc on most of the financial institutions had them fall into liquidation and bankruptcy. One of the most popular and most debated incident was the failure of the Lehman Brothers. The Lehman Brothers were a leading US investment bank that was worth $600 billion (D’Arcy). The global financial crisis prompted Lehman Brothers to close its leading subprime lender (BNC Mortages) in 23 locations (). The closing of these locations were so aggressive that the company filed for voluntary bankruptcy on September 15, 2008 (“Lehman Brothers Collection”). The file for bankruptcy was needed after an unsuccessful attempt for a government bail-out and mergers. Although this was a United States based

Bear Stearns near-bankruptcy and bankruptcy of Lehman Brothers did significantly increase the risk of the crisis becoming systemic. Because of their large size and their key role in some markets, their failure has caused a panic among investors beginning not only in the US but also in the international financial markets. It is therefore unquestionably the largest bankruptcies of financial history of the United States.

This chapter is about the background of 2007-2008 financial crisis. The 2007-2008 financial crisis has a huge impact on US banking system and how the banks operate and how they are regulated after the financial turmoil. This financial crisis started with difficulty of rolling over asset backed commercial papers in the summer of 2007 due to uncertainty on the liquidity of mortgage backed securities and questions about the soundness of banks and non-bank financial institutes when interest rate continued to go up at a faster pace since 2004. In March 2008 the second wave of liquidity loss occurred after US government decided to bailout Bear Stearns and some commercial banks, then other financial institutions took it as a warning of financial difficulty of their peers. In the meantime banks started hoarding cash and reserve instead of lending out to fellow banks and corporations. The third wave of credit crunch which eventually brought down US financial system and spread over the globe was Lehman Brother’s bankruptcy in August 2008. Many major commercial banks in US held structured products and commercial papers of Lehman Brother, as a result, they suffered a great loss as Lehman Brother went into insolvency. This panic of bank insolvency caused loss of liquidity in both commercial paper market and inter-bank market. Still banks were reluctant to turn to US government or Federal Reserve as this kind of action might indicate delicacy of

158-years-old institution, the Lehman Brothers Holdings, Inc., Sought chapter 11 protections on September 15, 2008, indicating the largest bankruptcy filed in the U.S. history. The Lehman declared $639 billion in assets and $619 billion on debts, which surpassed the previous bankruptcy filed by WorldCom and Enron. The Lehman brother was 4th best-ranked U.S. Investment bank and globally 7th best investment bank before the collapse. An industry that had 25,000 employees worldwide crumbled into almost nothing within a week, which is one of the seminal event in the global financial crisis. The Lehman Brothers’ demise was a result of substantial attention to the U.S. subprime mortgage and the real estate markets that coaxed into global financial crisis, when these markets began to slow-down.

In relation to the increase in house’s price, the rise of financial agreements such as mortgage-backed securities (MBS) and collateralized debt obligations (CDO) encouraged investors to invest in the U.S housing market (Krugman, 2009). When housing price declined in the U.S, many financial institutions that borrowed and invested in subprime mortgage reported losses. In addition, the fall of housing price resulted in default and foreclosure and that began to exhaust consumer’s wealth and

In 2008, the global financial industry experienced dramatic changes when the global financial crisis came furiously. In the United States, the historical changes appeared in the structure of investment banking. These changes included the fifth-largest US investment bank, Bear Stearns and the third-largest US investment bank, Merrill Lynch was acquired respectively, and the fourth-largest US investment bank, Lehman Brothers declared bankruptcy. In addition, the Goldman Sachs and the Morgan Stanley had no choice but to transform separately into the bank holding company. Moreover, the American government took over the Fannie Mae and the Freddie Mac and held a major share in the American International Group. There were also various events about the bankruptcy and merger of the other financial institutions. In the wider world, some banks in Belgium, Britain, Switzerland and Germany also got into the dilemmas and troubles, and these banks accepted the government aids without choices.

There are many articles online about Lehman Brothers bankruptcy and how their actions and the housing bubble led to their demise. Though each

Lehman Brothers, based in New York City, was the fourth largest global investment bank until 2008. They provided financial investment services, banking, and management around the globe.

So in order for banks to survive they start selling their assets to fill the deficit they are facing. However, this asset liquidation will not only affect one bank but will rather have an impact on the whole financial sector forcing other banks to follow the failed ones and sell their assets (Kashyap, Rajan et al. 2008).