Financial Crisis 2008 Case Study
1. Introduction
The financial crisis in 2008 caused a global impact on the world`s economy. Starting with the real estate crash in the entire U.S. market, an increasing number of powerful banks suffered from the resulting credit defaults. The dependencies among the banks all over the world have spread the crisis to the financial markets overseas. Several governments have become increasingly important actors, with the aim to stabilize their domestic economy. Politicians agreed that the rescue of the banks was a necessary step on the way out of the crisis. In deciding to subsidize the banks, which have too much influence on the whole economy, Germany has become an appropriate example of how a government`s reaction could look like. This paper …show more content…
As a result, the banks had to face extremely high depreciations because of the unredeemed mortgages. Additionally, the banks did no longer trust each other, what led to an ever deeper spiral. If the basis of trust is missing, the banks are not willing to borrow each other money. Such relationships are crucial in this business, and a bad reputation can mean the end of a bank. The financial crisis reached its climax with the collapse of Lehman Brothers, at that time one of the most powerful banks worldwide. In the following years it become increasingly apparent that the crisis spread to the entire world economy, especially the German economy suffered from significant losses. Consequently, the Commerzbank recorded a total loss of 403 million euro in 2008 and the Hypo Vereinsbank 595 million euro (Gottswinter, …show more content…
The new cash-flow enables banks to improve their equity positions, and hence to grant more loans. In this case, loans can be represented graphically using a supply and demand curve exactly as tangible products. The problem was, although the banks were solvent and able to grant credits, the demand has steadily decreased because of still continuing uncertainty. Since the financial crisis in 2008, the credit volume has been reduced by 9.2 % compared to 2015 (Toller, 2015). Nevertheless, Commerzbank for example benefited from a significant economic recovery. Since 2012 the bank acquired 666.000 new customers, until the end of 2016 the number is estimated to be
The financial crisis in 2008 caused a global impact on the world`s economy. Starting with the real estate crash in the entire U.S. market, an increasing number of powerful banks suffered from the resulting credit defaults. The dependencies among the banks all over the world have spread the crisis to the financial markets overseas. Several governments have become increasingly important actors, with the aim to stabilize their domestic economy. Politicians agreed that the rescue of the banks was a necessary step on the way out of the crisis. In deciding to subsidize the banks, which have too much influence on the whole economy, Germany has become an appropriate example of how a government`s reaction could look like. This paper …show more content…
As a result, the banks had to face extremely high depreciations because of the unredeemed mortgages. Additionally, the banks did no longer trust each other, what led to an ever deeper spiral. If the basis of trust is missing, the banks are not willing to borrow each other money. Such relationships are crucial in this business, and a bad reputation can mean the end of a bank. The financial crisis reached its climax with the collapse of Lehman Brothers, at that time one of the most powerful banks worldwide. In the following years it become increasingly apparent that the crisis spread to the entire world economy, especially the German economy suffered from significant losses. Consequently, the Commerzbank recorded a total loss of 403 million euro in 2008 and the Hypo Vereinsbank 595 million euro (Gottswinter, …show more content…
The new cash-flow enables banks to improve their equity positions, and hence to grant more loans. In this case, loans can be represented graphically using a supply and demand curve exactly as tangible products. The problem was, although the banks were solvent and able to grant credits, the demand has steadily decreased because of still continuing uncertainty. Since the financial crisis in 2008, the credit volume has been reduced by 9.2 % compared to 2015 (Toller, 2015). Nevertheless, Commerzbank for example benefited from a significant economic recovery. Since 2012 the bank acquired 666.000 new customers, until the end of 2016 the number is estimated to be